The co-existence of tumor specific immunity with a progressing tumor is observed in a variety of experimental systems and remains one of the major paradoxes of tumor immunology. We now report that a human melanoma cell line (SMC) expressing MHC class II was able to induce clonal anergy in a specific, MHC-restricted CD4+ T cell clone (STC3). Clonal anergy is a mechanism of T lymphocyte tolerance induced by antigen receptor stimulation in the absence of co-stimulation. We observed that a CD4+ T cell clone and an autologous melanoma cell line form conjugates with each other that leads to an increase of [Ca++]i in the T cell clone; however, this interaction failed to induce IL-2 production or proliferation of the T cell clone. Furthermore, this interaction rendered this T cell clone unresponsive to subsequent stimulation. All these effects were MHC class II restricted. Therefore, the human melanoma cell line SMC was capable of delivering antigen-specific signals to the T cell clone, but did not deliver the co-stimulatory signals, e.g. a B7/CD28 interaction, necessary for full T cell activation. Transfection of the melanoma cells with an expression vector containing a B7 cDNA that resulted in subsequent expression of B7 on its cell surface rendered it into a fully competent antigen presenting cell, which is able to induce a nuclear factor binding to the IL-2 promoter in the specific T cell clone resulting in enhanced IL-2 transcription, synthesis, and T cell proliferation. These findings suggest that manipulation of co-stimulation may offer new strategies for future tumor immunotherapy.