Activation with lipopolysaccharide induces macrophages to produce the enzymes arginase and nitric oxide (NO) synthase. Both enzymes use as a substrate the amino acid L-arginine, which can be either hydrolyzed by arginase to urea and ornithine or oxidized by NO synthase to NO and citrulline. NO is important in the bactericidal and cytotoxic activities of macrophages. An equivalent functional role of arginase and its products is not known. We tested the induction of arginase in bone marrow-derived macrophages by endogenous mediators that are known to induce NO synthase, such as interferon-gamma (IFN-gamma), or suppress the induction of this enzyme, such as interleukin (IL)-4, IL-10, and prostaglandin E2 (PGE2). We find that PGE2 and the TH2 cytokines IL-4 and IL-10 are potent inducers of arginase. In contrast, the TH1 cytokine IFN-gamma does not induce arginase. Simultaneous application of both types of mediators leads to reduced induction of both arginase and NO synthase. Exposure of macrophage cultures to inducers of NO synthase exhausts their ability to respond subsequently to inducers of arginase. Conversely, exposure of the cells to inducers of arginase exhausts their ability to respond subsequently to inducers of NO synthase. The results are consistent with a competition of both enzymes for their substrate, L-arginine, with a reciprocal inhibition in the induction of both enzymes, or a combination of both phenomena. The enzymes NO synthase and arginase appear to define two alternate functional states of macrophages, induced by TH1 and TH2 cytokines, respectively.