The interaction of IFN-alpha and IFN-gamma with monocytes results in several actions that significantly influence the course of an immune response. Many of these effects are proinflammatory and can contribute to the degree of tissue injury at a site of inflammation. Whereas recent investigations target IL-4 as a T cell product that can antagonize some of the responses induced by IFN, little is known regarding the mechanisms involved. We have taken advantage of two well defined systems: the transcriptional activation of the cellular genes ISG-54 by IFN-alpha and IP-10 by IFN-gamma. IL-4 treatment of both the monocytic leukemia cell line, THP-1, and normal peripheral blood monocytes resulted in inhibition of IFN-induced RNA levels for both genes. Nuclear run-on assays in THP-1 cells indicated that the effects of IL-4 were due to the inhibition of the transcriptional activation of these genes by both IFN-alpha and IFN-gamma. This inhibition was not due to alteration in the binding characteristics of IFN-alpha or IFN-gamma to the cell. In the IFN-alpha system, we were able to show that IL-4 treatment resulted in reduced formation of the transcriptional activator, IFN-stimulated gene factor 3. This reduction appears to be the result of a defect in the ability of IFN alpha to activate the IFN-stimulated gene factor 3 alpha component of IFN-stimulated gene factor 3.