Class II major histocompatibility complex (MHC) molecules function as antigen-presenting elements as well as signal transducers on B lymphocytes. We previously reported that a B lymphoma cell transfectant, 5C2, expressing genetically engineered I-Ak molecules with truncated cytoplasmic domains was severely impaired in both antigen presentation and in anti-Ia-induced intracytoplasmic signalling. These two functions could be restored by preculturing 5C2 cells with cyclic AMP analogues. Here we demonstrate that impaired signal transduction by truncated class II molecules results in a deficiency in induction of the newly defined B-cell accessory molecule B7 (ref. 8), which can be reversed by restoration of B7 expression. These data imply that contact of the T-cell antigen receptor with MHC/antigen ligand results in signal transmission through the class II cytoplasmic domain. This signal, which can be mimicked by dibutyryl cAMP, induces expression of B7, resulting in effective antigen presentation. The fact that crosslinking of surface class II MHC also induces B7 expression on normal resting human B cells supports this contention.