The ability of thyroid follicular epithelial cells (TFEC) to act as APC is linked to the expression of class II (Ia) molecules of the MHC. The cloned murine thyroid-derived epithelial cell line M.5 was used to demonstrate the potential effects of virus in the direct induction of Ia molecules on TFEC. Membrane binding and replication of reovirus type 1 in TFEC was demonstrated using fluorescein-labeled antireovirus antibody and fluorescence microscopy. One consequence of the interaction between reovirus and M.5 cells was the induction of Ia Ag and augmented class I molecule expression in M.5 cells. The levels of Ia expression at three days after reovirus binding were amplified 17.3-fold over controls and were 2-fold less than that seen upon treatment of M.5 cells with IFN-gamma. Supernatant transfer experiments showed that the induction of Ia expression was directly linked to the binding of virus to M.5 cells, and was not dependent upon virus replication or the presence of IFN. These results indicate that early events of reovirus binding or receptor internalization on TFEC initiate a signaling process which results in the induction of class II and augmentation of class I MHC protein levels on the cell surface.