During pregnancy, many large granular NK lineage cells that are recognized by mAb 4H12 accumulate at uterine implantation sites. Similar large, granular, 4H12+ NK cells accumulate during the 2nd wk of culture of IL-2-activated NK cells. Inasmuch as uterine NK cell lytic activity is suppressed during pregnancy, apparently due to the effects of PGE2, we have analyzed the effect of PGE2 on the phenotype, morphology, and lytic activity of IL-2-activated NK cells as a model for NK cell differentiation at uterine implantation sites. When cultures of IL-2-activated NK cells were supplemented with 1 microM PGE2, the cells increased in size and granularity, accompanied by an increase in the number of cells expressing the 4H12 Ag. This effect was specific to PGE2 because PGF2 alpha at the same concentration had no effect. In addition, changes in morphology and up-regulation of 4H12 Ag expression could be augmented by 100 mM dibutyryl cAMP, but not 100 mM dibutyryl cGMP, suggesting that the PGE2 effects are mediated by changes in cytoplasmic cAMP levels. When indomethacin was added to cultures of IL-2-activated NK cells at the beginning of the culture period, 4H12 expression was markedly reduced. Indomethacin also increased the cytolytic capacity of NK cells and reduced the number of cells that developed the large granular morphology characteristic of 4H12+ cells. When activated NK cells were sorted into 4H12+ and 4H12- populations and tested for their ability to kill YAC-1 cells, we found that 4H12+ NK cells have lower lytic activity as compared to the 4H12- subset. Furthermore, when activated NK cells were labeled with [3H]TdR, combined with 4H12 labeling, we found that the 4H12+ subset was not proliferative. These results are likely to have direct relevance to NK cell differentiation at uterine implantation sites where NK cell activity is suppressed by PGE2, 4H12 expression is up-regulated and NK cells differentiate into large, granular and relatively nonlytic cells termed granulated metrial gland cells.