Mononuclear phagocytes in the synovium of patients with arthritis, in contrast to blood monocytes, were found to express a third receptor for the constant region of Ig (Fc gamma RIII), in addition to Fc gamma RI and Fc gamma RII. Previously identified on mature mononuclear phagocytes or phagocytes exposed to transforming growth factor-beta (TGF-beta) in vitro, this study documents the presence of Fc gamma RIII (CD16) expressing cells at an inflammatory site. Furthermore, the presence of CD16 on the majority of the LeuM3 (CD14) positive synovial monocytic cells could be mimicked by exposing blood monocytes to synovial fluids from patients with rheumatoid arthritis (17 of 19) and synovial fluids from patients with osteoarthritis (4 of 4). In additional studies, the soluble factor in inflammatory synovial fluids responsible for regulating CD16 expression was found to be consistent with the presence of TGF-beta. Inhibition of the activity in synovial fluids with a neutralizing antibody to TGF-beta confirmed a role for this peptide in synovial phagocytic cell CD16 expression. Moreover, signal transduction through CD16 on synovial phagocytes resulted in augmented extracellular release of superoxide anion that may contribute to tissue damage and other inflammatory sequelae. Identification of TGF-beta and its association with upregulation of CD16 at sites of chronic inflammation may provide insight into the destructive lesions associated with inflammatory arthropathies.