Cytokines such as interferon-gamma (IFNgamma) released by resident uterine immune cells are thought to influence the expression of differentiated function in the human endometrium. Decidualization of the stromal cell compartment is confined to the superficial endometrial layer in the nonpregnant uterus. To explore the molecular mechanism underlying the spatial expression of the decidual phenotype, the effect of IFNgamma on the induction of two well characterized markers of endometrial stromal (ES) cell differentiation, PRL and tissue factor (TF), has been investigated. IFNgamma antagonizes cAMP-mediated PRL protein and messenger RNA expression in primary ES cell cultures through inhibition of decidual PRL promoter activity. In parallel, IFNgamma stimulates Stat-1 (signal transducer and activator of transcription-1) expression, phosphorylation, and translocation to the nucleus. Exogenously expressed Stat-1 potently represses decidual PRL promoter activation, indicating the potential for the inhibitory effects of IFNgamma to be mediated by Stat-1. We demonstrate that although the coactivator CREB-binding protein/p300 is essential for decidual PRL transcription, this coactivator does not appear to be the target for IFNgamma-mediated repression. By contrast, IFNgamma has little effect on cAMP-mediated TF expression, but induces TF in ES cells not exposed to a decidualizing stimulus. This suggested that in vivo TF expression may not be restricted to decidualizing cells of the superficial layer and was confirmed by immunohistochemical analysis demonstrating intense TF staining in the basal stromal compartment during the regeneration phase of the cycle. The differential sensitivity of decidualization-associated genes to IFNgamma illustrates its potential role as a selective biological response modifier that influences regional function within the endometrium.