The membrane proximal ectodomain region (MPER) of HIV-1 gp41 is a highly conserved determinant that is crucial for membrane fusion and is a target for broadly neutralising antibodies. In this study we compared the function of the MPER in cell-free versus cell-to-cell virus infection and spread. W666A and I675A MPER mutations diminished cell-free pseudovirion entry into U87.CD4.CCR5 cells by ~ 100-fold and blocked the ability of cell free virus to initiate spreading infection in U87.CD4.CCR5 cells and PBMCs. In contrast to cell-free virus, spreading infection was observed for W666A and I675A when cultures were initiated with cell-associated virus. The spreading infection initiated by cell-associated virus was dependent on the presence of a fusion-competent Env, and the expression of CD4 and CCR5 on target cells. Furthermore, L8S/S9R mutations in the MA region of Gag that block Env incorporation into virions, also blocked cell free and cell-cell viral spread. This result confirms that the cell-to-cell viral transmission observed with the MPER mutants is mediated by a completely assembled virus and is not simply due to cell-cell fusion. Our data reveal separable functions for the MPER in cell-free versus cell-associated virus infectivity. Our data imply that the mechanism of neutralization by MPER-directed antibodies is different for cell-free versus cell-cell transmitted virus which has implications for HIV-1 vaccine design.