To study the role of IFN-gamma in the pathogenesis of inflammatory skin diseases, we used the involucrin promoter to overexpress IFN-gamma in the suprabasal layers of transgenic mouse epidermis. IFN-gamma mRNA and protein were readily detectable in the skin but not in the blood. Mice exhibited striking hypopigmentation of the hair due to a reduced abundance of DOPA-positive melanocytes. Severely affected mice had reddened skin, growth retardation, hair loss, and flaky skin lesions. Keratinocyte proliferation was increased, and there was epidermal thickening with spongiosis and parakeratosis. Suprabasal beta1 integrin expression and induction of keratin 17 in interfollicular epidermis provided evidence of perturbed differentiation. IFN-gamma receptor expression was reduced, and there was induction of ICAM-1 and MHC class II molecules on the surface of transgenic keratinocytes. The skin of severely affected mice was characterized by a dermal infiltrate of T lymphocytes and macrophages/monocytes, but the epidermis was almost devoid of Langerhans cells and T lymphocytes. The number of Langerhans cells in the lymph nodes was increased in the transgenics, and autoantibodies to keratinocytes were produced. Transgenic mice showed an increased contact hypersensitivity reaction to topical application of DNFB. We conclude that constitutive IFN-gamma expression in the epidermis results in a form of eczema resembling contact dermatitis and in a profound contact hypersensitivity reaction.