ISG15 is a 15-kDa protein of unique primary amino acid sequence, which is transcriptionally regulated by interferon (IFN) alpha and IFN-beta. Because it is synthesized in many cell types and secreted from human monocytes and lymphocytes, we postulated that ISG15 might act to modulate immune cell function. ISG15 stimulated B-depleted lymphocyte proliferation in a dose-dependent manner with significant proliferation induced by amounts of ISG15 as low as 1 ng/ml (58 pM). Maximal stimulation of [3H]thymidine incorporation by B-depleted lymphocytes occurred at 6-7 days. Immunophenotyping of ISG15-treated B-depleted lymphocyte cultures indicated a 26-fold expansion of natural killer (NK) cells (CD56+). In cytotoxicity assays, ISG15 was a potent inducer of cytolytic activity directed against both K562 (100 lytic units per 10(6) cells) and Daudi (80 lytic units per 10(6) cells) tumor cell targets, indicating that ISG15 enhanced lymphokine-activated killer-like activity. ISG15-induced NK cell proliferation required coculturing of T and NK cells, suggesting that soluble factor(s) were required. Measurement of ISG15-treated cell culture supernatants for cytokines indicated production of IFN-gamma (> 700 units/ml). No interleukin 2 or interleukin 12 was detected. IFN-gamma itself failed to stimulate lymphocyte proliferation and lymphokine-activated killer cell activation. Further, induced expression of IFN-gamma mRNA was detected by reverse transcription-PCR in T lymphocytes after ISG15 treatment but not in NK cells. Enhancement of NK cell proliferation, augmentation of non-major histocompatibility complex-restricted cytotoxicity, and induction of IFN-gamma from T cells identify ISG15 as a member of the cytokine cascade and suggest that it may be responsible for amplifying and directing some of the immunomodulatory effects of IFN-alpha or IFN-beta.