Alveolar macrophages, resident phagocytic cells in the lung that derive from peripheral blood monocytes, are paradoxically ineffective in presenting antigen to T cells. We found that antigen presentation by alveolar macrophages could be restored by the addition of anti-CD28 mAb to cultures of T cells and macrophages, indicating that costimulation by alveolar macrophages via the CD28 pathway was defective. In addition, we found that alveolar macrophages activated with IFN-gamma failed to express B7-1 or B7-2 antigens, which normally ligate CD28 on T cells and provide a costimulatory signal required for the activation of T cells. These observations are the first to demonstrate the inability of a "professional" antigen-presenting cell type to effectively express the costimulatory molecules B7-1 and B7-2. Inasmuch as immune reactions within the lung are inevitably associated with inflammatory injury to pulmonary tissue, these observations suggest that reduced expression of B7-1 and B7-2 by alveolar macrophages may be advantageous, as a critical mechanism involved in the induction of peripheral tolerance to the abundance of antigens to which mucosal tissues are continuously exposed.