The monocyte-derived inflammatory mediator, prostaglandin E2 (PGE2), can reduce IFN-gamma production, and this in turn may relate to IL-4 up-regulation of IgE synthesis and impaired delayed hypersensitivity in atopy. These abnormalities may relate to the cyclic nucleotide dysregulation in atopic dermatitis (AD), where monocyte cyclic AMP-phosphodiesterase (PDE) activity is increased and the consequent reduction in cAMP levels allows increased inflammatory responsiveness. In this study, we assessed the relationship between PGE2 and IFN-gamma production along with abnormal PDE activity in AD monocytes. Blood mononuclear leukocytes (MNL) from normal and AD donors were cultured for 24 hours, and supernatants were assayed for PGE2 and IFN-gamma by RIA. Spontaneous PGE2, but not leukotriene C4 release, was significantly increased in AD MNL (p < 0.05), although IFN-gamma levels were reduced (p < 0.05). In contrast, purified AD T cells, after removal of PGE2-producing monocytes, produced levels of IFN-gamma significantly higher than in normal T cell cultures. Inhibition of PGE2 synthesis by indomethacin caused increased IFN-gamma production by MNL cultures. We noted a strong negative correlation (r = 0.77) between PDE activity and IFN-gamma production in MNL cultures. We speculate that abnormal cyclic nucleotide metabolism caused by increased PDE activity may allow elevated levels of PGE2 production by AD monocytes. This study demonstrates a regulatory interaction between monocytes and T cells in AD and suggests that PGE2 may be an extracellular messenger between these cells to modulate IFN-gamma production.