T cell-dependent regulation of B cell growth and differentiation involves an interaction between CD40, a B cell surface molecule, and the CD40 ligand (CD40L) which is expressed on activated CD4+ T cells. In the current study, we show that recombinant membrane-bound murine CD40L induces B cells to express costimulatory function for the proliferation of CD4+ T cells. CD40L- or lipopolysaccharide (LPS)-activated, but not control-cultured B cells were strong costimulators of anti-CD3 or alloantigen-dependent T cell responses. The molecular interactions responsible for the increased costimulatory functions were examined by analyzing the activated B cells for changes in the expression of two costimulatory molecules, B7 and heat-stable antigen (HSA), as well as by the use of antagonists of B7 and HSA (CTLA4.Fc and 20C9, respectively). The expression of both B7 and HSA was enhanced on B cells activated with LPS. As observed in previous studies, the costimulatory activity of the LPS-activated B cells was dependent on both B7 and HSA and was completely inhibited in the presence of a combination of CTLA4.Fc and 20C9. In contrast, activation of B cells with CD40L induced the expression of B7 but did not enhance the expression of HSA. In addition the costimulatory activity of the CD40L-activated B cells was partially, but not completely, inhibited by the combination of CTLA4.Fc and 20C9. These results demonstrate that CD40L regulates costimulatory function of B cells in part by inducing the expression of B7 and suggest that CD40L-activated B cells express an additional costimulatory activity that is not associated with LPS-activated B cells.