Immune surveillance of skin cancer involves the stimulation of effector T cells by tumor-derived antigens and antigen-presenting cells (APCs). An effective APC must not only display processed antigen in the context of MHC molecules but also express co-stimulatory molecules that are required to fully activate T cells. One of the most common cutaneous neoplasms is basal cell carcinoma. To investigate expression of the co-stimulatory molecules CD80 (B7-1) and CD86 (B7-2) on tumor-associated dendritic cells (TADCs), cryosections from basal cell carcinomas were immunostained. In basal cell carcinomas, only 1 to 2% of intratumor and 5 to 10% of peritumor APCs expressed CD80 or CD86. In contrast, biopsies of immunological/inflammatory dermatoses revealed that 38 to 73% of APCs expressed CD80 and CD86. To further evaluate their phenotype and function, TADCs were isolated from tissue samples of basal cell carcinomas; they were non-adherent to plastic, displayed a typical dendritic morphology, and expressed high levels of major histocompatibility class II molecules on their surface. When TADCs were compared with dendritic cells from blood for presentation of superantigens (staphylococcal enterotoxins A and B) to resting autologous T cells, TADCs were consistently weaker stimulators of T cell proliferation than blood dendritic cells. When analyzed by flow cytometry, TADCs expressed high levels of HLA-DR, but only 5 to 10% co-expressed CD80 or CD86. A 3-day culture in granulocyte/macrophage colony-stimulating factor-containing medium partially reconstituted the TADC expression of CD80 and CD86 as well as their immunostimulatory capacity. Thus, in this common skin cancer, although there are prominent collections of HLA-DR-positive APCs in and around tumor cells, the TADCs are deficient in important co-stimulatory molecules as well as being weak stimulators of T cell proliferation. The paucity of co-stimulatory molecule expression and functional activity of TADCs may explain why the local T lymphocytic infiltrate fails to become fully activated to eradicate adjacent tumor cells. From a clinical perspective, these findings suggest a novel immunotherapeutic strategy targeting T cell co-stimulatory molecules on professional APCs in cutaneous oncology.