A mycoplasmal species, Acholeplasma laidlawii, isolated as a contaminant from a fetal lamb kidney cell line, was shown to be associated with the induction of interferon in cultures of ovine peripheral blood leukocytes. Broth cultures of the mycoplasma induced between 20 and 230 U of interferon per ml in leukocytes from two adult ewes. The amount of interferon produced correlated with the inoculum size of mycoplasma. Interferon production was associated with replication of the mycoplasma in the leukocyte cultures. Interferon was not induced by sterile mycoplasmal broth, a cell-free filtrate of the mycoplasmal cultures, or heat-inactivated mycoplasmas. The antiviral substance was characterized as interferon by the usual criteria.