We have shown previously that treatment of SJL/J mice with anti-interferon-gamma monoclonal antibody (mAb) exacerbated experimental allergic encephalomyelitis (EAE) only if administered at the time of encephalitogenic challenge. Here we investigate the role of interferon-gamma (IFN-gamma) and anti-IFN-gamma mAb in the early events of T cell activation in vitro. Pretreatment of murine peritoneal exudate cells (PEC) with IFN-gamma led to a significant increase in their ability to activate myelin basic protein (MBP)-specific, short-term T cell lines. When exogenous IFN-gamma was added to cocultures of T cells and MBP-pulsed PEC, the antigen-specific T cell proliferation was considerably reduced. Anti-IFN-gamma mAb added to these cultures neutralized the inhibitory effect of the exogenous IFN-gamma on T cell proliferation but had no visible effect on class II MHC expression by the antigen-pulsed PEC present in the same cultures. A reduction in T cell proliferation was also observed when the T cells were treated with IFN-gamma prior to coculture with the MBP-pulsed PEC. These results demonstrate that, on one hand, IFN-gamma enhances the ability of PEC to induce antigen-specific T cell proliferation but, on the other hand, acts on the T cells themselves by inhibiting their proliferation in response to the antigen-pulsed PEC. This may explain why treatment with anti-IFN-gamma antibody in vivo induces EAE exacerbation.