Interferon beta (IFN-β) is widely used to ameliorate disease progression in patients with Multiple Sclerosis. IFN-β has a short half-life in humans, necessitating frequent administration for optimum effectiveness. Covalent modification of IFN-β with polyethylene glycol (PEG) improves the pharmacokinetic properties of the protein, but can adversely affect the protein's in vitro bioactivity. Random modification of lysine residues in IFN-β with amine-reactive PEGs decreased the in vitro bioactivity of the protein 50-fold, presumably due to modification of lysine residues near critical receptor binding sites. PEGylated IFN-β proteins that retained high in vitro bioactivity could be obtained by selective modification of the N-terminus of the protein with PEG. Here we use site-specific PEGylation technology (targeted attachment of a cysteine-reactive-PEG to an engineered cysteine residue in IFN-β) to identify several additional amino acid positions where PEG can be attached to IFN-β without appreciable loss of in vitro bioactivity. Unexpectedly, we found that most of the PEG-IFN-β analogs showed 11- to 78-fold improved in vitro bioactivities relative to their unPEGylated parent proteins and to IFN-β-1b. In vivo studies showed that a lead PEG-IFN-β protein had improved pharmacokinetic properties compared to IFN-β and was significantly more effective than IFN-β at inhibiting growth of a human tumor xenograft in athymic mice.