Thymic epithelial cell lines isolated from hyperplastic thymi of transgenic mice over-expressing human papilloma viral oncogenes E6 and E7 constitutively displayed a phenotype consistent with a cortical origin. Exposure to IFN-gamma induced class II MHC and ICAM-1 expression, and up-regulated expression of VCAM-1 and class I MHC molecules. CD40 expression was maximally induced by a combination of IFN-gamma and IL-1, with lower levels of induction observed with a mixture of IFN-gamma and tumor necrosis factor (TNF)-alpha or TNF-alpha alone. B7-1 or B7-2 was not expressed constitutively or in response to cytokines. These stromal cells supported the development of CD4 single-positive (SP) cells in reaggregate co-cultures with CD4+ CD8+ thymocytes from TCR transgenic mice, but did not stimulate class II MHC-restricted, moth cytochrome c (MCC)-reactive T cells in vitro. The behavior of the culture system was consistent with positive selection, i.e. increased numbers of CD4 SP cells, gain of antigen responsiveness, and requirement for epithelial class II MHC products. Some variants of these stromal cell lines required exogenous MCC peptide in the reaggregation cultures (RC) for positive selection to occur. While a low concentration of MCC peptide (0.01-0.1 microM) significantly enhanced the accumulation of CD4 SP cells, higher concentrations of peptide (1-10 microM) resulted in recovery of predominantly CD4- CD8- and CD4(low) CD8- cells. Thymocytes recovered from RC containing low, but not high concentrations of peptide responded to MCC peptide in secondary cultures with splenic antigen-presenting cells.