Interferon gamma (IFN-gamma acts as a mediator of multiple sclerosis (MS) exacerbations through a number of biological effects, such as induction of major histocompatibility class II complexes (MHC-II), macrophage activation and potentiation of tumor necrosis factor (TNF-alpha). The clinical efficacy of interferon beta (IFN-beta) therapy in reducing exacerbations of relapsing-remitting MS has been related to antagonistic effects on various activities of IFN-gamma, including MHC-II gene induction. However, there is no model to explain such antagonistic effects of IFN-beta and IFN-gamma, and the two cytokines are also known to act synergistically against viruses and in the induction of MHC-I. We show that IFN-beta does inhibit an immediate molecular event of IFN-gamma, namely activation and DNA binding of the transcription factor Stat1. We propose a model of direct interference of the IFN-gamma and IFN-alpha,beta signal transduction pathways accounting for antagonistic effects on some genes, which in turn activate MHC-II transcription, as well as for synergistic effects on other genes. In addition, study of MS patients treated with natural IFN-beta shows that IFN-beta significantly reduces serum levels of IFN-gamma while increasing IL-4, strongly suggesting that IFN-beta also controls the relative activation of TH1- and TH2-type T lymphocytes.