The mode of action of interferon in de novo Moloney murine leukemia virus (Mo-MuLV) infection of mouse bone marrow/thymus (TB) cells was studied. Our results indicate that in interferon-treated cells, there is approximately a 2000 fold decrease in the production of infectious MuLV, but only a 10-20 fold decrease in the level of viral specific extracellular reverse transcriptase activity, and only about a 2 fold difference in the number of virus particles observed on the cell membrane as determined by scanning electron microscopic (SEM) studies. Transmission electron microscopic (TEM) studies showed that the proportion of early budding virions, which have shallow crescent-shaped ribonucleoprotein cores (Figure 3A), to virions in later stages of assembly (Figures 3B-3D) is relatively higher in interferon-treated cells than in the untreated controls. From a temperature shift-down experiment on a temperature-sensitive mutant of MuLV, ts 3, which produces viral particles that fail to dissociate from the cell surface at the nonpermissive temperature, we demonstrated that ts 3 virions partially assembled on the cell membrane prior to the addition of interferon are able to complete assembly and to dissociate from the cell membrane on temperature shift-down in the presence of interferon action. Our data suggest that interferon neither inhibits the late stages of virion assembly at which ts 3 virions are arrested at the nonpermissive temperature nor prevents release of the virions. Our findings also indicate that in interferon-treated cells, most of the extracellular virions are noninfectious.