KE-298 is a new immunomodulatory agent with a chemical structure similar to that of D-penicillamine. We compared the effects of KE-298 on type II collagen-induced arthritis (CIA) in mice with those of prednisolone. KE-298 at a dose of 25 mg/kg showed only a decrease in the progression of foot pad swelling. At doses of 50 and 100 mg/kg, however, KE-298 inhibited the severity and development of the collagen-induced arthritis index, the progression of foot pad swelling, bone damage and histopathological changes. These inhibitory effects were more pronounced at the dose of 50 mg/kg than at 100 mg/kg. KE-298 also significantly inhibited the delayed-type hypersensitivity (DTH) response to type II collagen, but did not affect the production of anti-type II collagen IgG antibody in arthritic mice. To determine the inhibitory mechanism of KE-298, we studied the effect of KE-298 on IL-1 beta and TNF-alpha production in mice. We found that KE-298 inhibited bacterial lipopolysaccharide (LPS)-induced IL-1 beta production at doses of 50 and 100 mg/kg. It inhibited the production of TNF-alpha at the dose of 50 mg/kg, but not at 100 mg/kg. In summary, at appropriate dosages, KE-298 inhibited CIA and TNF-alpha production in mice. KE-298 also inhibited the DTH reaction to type II collagen and LPS-induced IL-1 beta production in a dose-related fashion. These findings suggest that these effects of KE-298 are closely related to its immunomodulatory action.