Intracellularly expressed interferon gamma (IFNgamma) has been reported to possess biological activity similar to that of IFNgamma added to cells. This study addresses the mechanisms for such similar biological effects. Adenoviral vectors were used to express a non-secreted form of human IFNgamma or a non-secreted mutant form in which a previously demonstrated nuclear localization sequence (NLS), 128KTGKRKR134, was replaced with alanines at K and R positions. With the vector expressing non-secreted wild-type IFNgamma, biological responses normally associated with extracellular IFNgamma, such as antiviral activity and MHC class I upregulation, were observed, although the mutant IFNgamma did not possess biological activity. Intracellular human IFNgamma possessed biological activity in mouse L cells, which do not recognize extracellularly added human IFNgamma. Thus, the biological activity was not due to leakage of IFNgamma to the surroundings and subsequent interaction with the receptor on the cell surface. Biological function was associated with activation of STAT1alpha and nuclear translocation of IFNgamma, IFNGR1 and STAT1alpha. Immunoprecipitation of cellular extracts with antibody to the nuclear transporter NPI-1 showed the formation of a complex with IFNgamma-IFNGR1-STAT1alpha. To provide the physiological basis for these effects we show that extracellularly added IFNgamma possesses intracellular signaling activity that is NLS dependent, as suggested by our previous studies, and that this activity occurs via the receptor-mediated endocytosis of IFNgamma. The data are consistent with previous observations that the NLS of extracellularly added IFNgamma plays a role in IFNgamma signaling.