The lungs face the immunologic challenge of rapidly eliminating inhaled pathogens while maintaining tolerance to innocuous Ags. A break in this immune homeostasis may result in pulmonary inflammatory diseases, such as allergies or asthma. The observation that alveolar epithelial type II cells (Type II) constitutively express the class II MHC led us to hypothesize that Type II cells play a role in the adaptive immune response. Because Type II cells do not express detectable levels of the costimulatory molecules CD80 and CD86, we propose that Type II cells suppress activation of naive T cells. Purified murine Type II cells were unable to activate T cells to specific Ag or in an alloreactive assay. Although IFN-gamma treatment up-regulated class II MHC expression, it did not alter the ability of the Type II cells to activate T cells. Rather, the Type II cells were able to suppress T cells from subsequent activation to specific Ag in an Ag-dependent manner. Priming T cells with Type II cells and Ag resulted in T cells that were suppressed to further activation, even after removal from the Type II cells. Thus, Type II cells of the lung help tolerate T cells to nonpathogenic environmental Ags.