Schwann cells (SC) do not express major histocompatibility complex (MHC) class II antigens under normal culture conditions. SC can, however, be induced in vitro to express MHC class II molecules by exposure to high concentrations of interferon-gamma (IFN-gamma) and can present antigens to antigen-specific T cell lines. In the present study immunohistochemical labeling showed that most SC (greater than 90%) prepared from rat neonatal sciatic nerves expressed MHC class II molecules when cultured together with mycobacterial antigen and T cells, and as a consequence were able to function as antigen-presenting cells in lymphoproliferation assays, without requiring pretreatment with IFN-gamma. Antigen or T cells alone were ineffective in stimulating MHC class II expression and induction of class II molecules was MHC restricted, requiring the presence of syngeneic T cells. Addition of monoclonal antibody DB1, directed against IFN-gamma to co-cultures of SC and T lymphocytes stimulated with antigen, prevented the induction of MHC class II antigen on SC. When SC were incubated with recombinant (r)IFN-gamma alone, up to 50% of SC showed positive labeling for MHC class II antigen. This level of expression was enhanced to greater than 80% when recombinant tumor necrosis factor (rTNF) was also added. rTNF alone had no effect, and addition of DBI antibody inhibited the synergistic effects of rTNF on MHC class II expression. The effects of rIL 4 were also investigated but neither rIL 4 alone nor rIL 4 in combination with rIFN-gamma induced MHC class II expression by SC. These results show that in the presence of sensitized T lymphocytes and antigen, SC do not require pretreatment with exogenous rIFN-gamma to express MHC class II antigens and function as antigen-presenting cells. T cell-derived TNF and IFN-gamma appear to act as mediators of the T cell-induced expression of MHC class II by SC.