In vitro incubation of the erythroleukemic cell line K562 with interferon-gamma (IFN-gamma) renders these cells relatively resistant to natural killer (NK) cell lysis. However, such treatment does not alter their sensitivity to LAK cell lysis. Thus, the lytic susceptibility of interferon-gamma-treated K562 (I-K562) cells to LAK cells as opposed to its relative resistance to NK cell lysis provides a functional assay to help distinguish these two types of effector cells. The relative resistance of I-K562 for NK cell-mediated lysis was not secondary to the release of soluble factors or the frequency of Leu-19+, CD3+ T cells, residual IFN-gamma, or expression of MHC Class I molecules. Coincubation of I-K562 cells with NK or LAK cells overnight did not appreciably change the pattern of lytic responses against K562 and I-K562 target cells. However, incubation of PBMC in vitro with I-K562 but not native K562 in the presence of r-IL-2 leads to a marked decrease in the generation of LAK cells. The inhibition of LAK cell generation was not secondary to differences in the consumption of bioactive levels of IL-2. Differences in the lytic capability of NK and LAK effector cells suggest heterogeneity among cells that mediate such non-MHC-restricted lysis. Use was made of cells from a patient with a large granular lymphocyte lymphoproliferative disease (greater than 85% Leu-19+) to determine if such cells could be used to distinguish clonal population of cells which would represent NK or LAK cell function. Of interest was the finding that such cells, even after incubation in vitro with IL-2, showed lytic function representative of NK cells but not LAK cells. Data concerning the inhibition of LAK cell generation by I-K562 cells have important implications for future therapeutic trials of IFN-gamma and IL-2 in the treatment of human malignancies.