The high concentration of foreign antigen in the lumen of the gastrointestinal tract is separated from the underlying lymphocytes by a single cell layer of polarized epithelium. Intestinal epithelial cells can express HLA class II antigens and may function as antigen-presenting cells to CD4(+) T cells within the intestinal mucosa. Using tetanus toxoid specific and HLA-DR-restricted T lymphocytes, we show that polarized intestinal epithelial cells directed to express HLA-DR molecules are able to initiate class II processing only after internalization of antigen from their apical surface. Coexpression of the class II transactivator CIITA in these cells, which stimulates highly efficient class II processing without the characteristic decline in barrier function seen in polarized monolayers treated with the proinflammatory cytokine gamma-IFN, facilitates antigen processing from the basolateral surface. In both cases, peptide presentation to T cells via class II molecules was restricted to the basolateral surface. These data indicate a highly polarized functional architecture for antigen processing and presentation by intestinal epithelial cells, and suggest that the functional outcome of antigen processing by the intestinal epithelium is both dependent on the cellular surface at which the foreign antigen is internalized and by the underlying degree of mucosal inflammation.