The B cell activation antigen B7/BB-1 is the natural ligand for the T cell antigen CD28 and these two molecules are capable of mediating T-B cell adhesion. Engagement of the CD28 pathway provides a costimulatory signal to T cells leading to enhanced lymphokine production. We report that interferon-gamma (INF-gamma) induces the expression of B7/BB-1 on monocytes. This induction was very specific since other cytokines and stimuli which activate monocytes including M-CSF, GM-CSF, IL3, TNF-alpha, and LPS were unable to induce B7/BB-1. Following culture of monocytes with INF-gamma, maximal mRNA and cell surface B7/BB-1 expression was detected at 12 and 24 hr, respectively. In addition to antigen presentation, optimal T cell activation and lymphokine synthesis require an additional cell to cell contact signal provided by the antigen presenting cell. The induction of B7/BB-1 on monocytes and subsequent heterophilic interaction of B7/BB-1 with CD28 may provide a mechanism for the amplification of T cell proliferation and lymphokine production by INF-gamma activated monocytes.