We have developed an in vitro system to study the interactions between biliary epithelium and lymphocytes using cultured human biliary epithelial cells. No class II antigens were detected by immunoperoxidase staining of the normal biliary epithelial cells, but alloactivated lymphocyte culture supernatants were able to induce class II expression. The activity of the supernatants was blocked with an anti-gamma-interferon monoclonal antibody. In addition, recombinant human gamma-interferon alone induced the expression of class II antigens and increased the intensity of class I staining of cultured biliary epithelial cells. Biliary epithelial cell-induced proliferation of alloreactive T lymphocytes demonstrated that the major histocompatibility complex molecules carry functional lymphocyte-activating determinants. The recognition of major histocompatibility complex determinants was confirmed by monoclonal antibody-blocking studies and by stimulation of an alloreactive T-cell clone. However, the biliary epithelial cells were much less potent stimulators than arterial endothelial cells tested in the same assay system.