We have demonstrated that although intestinal epithelial cells in fetuses and young rats do not express Ia antigens, in adult rats intestinal epithelial cells do express Ia antigens, as indicated by immunoperoxidase staining with monoclonal antibodies. Ia expression by intestinal epithelial cells appeared to be related to an increase in the number of intraepithelial lymphocytes (IEL). Most of the IEL were T cells and expressed the phenotype associated with cytotoxic/suppressor T cells, and a large number contained cytoplasmic granules. To directly study a possible modulating effect of IEL on intestinal epithelium, an Ia-negative intestinal epithelial cell line (IEC 17) of rat origin was cultured in the presence of supernatants obtained from Con A- or PHA-stimulated lymphocytes. IEL, as well as spleen cells but not bone marrow cells, were able to secrete a factor(s) capable of inducing Ia antigens on IEC 17 cells, as judged by immunoperoxidase staining and radioimmunoassay. Ia-positive IEC 17 cells were detectable after 12 hr and maximum Ia expression was obtained by 48-hr incubation. Persistence of Ia expression by intestinal epithelial cells required the continued presence of Ia-inducing factor in the medium. Lymphocyte proliferation was not essential for the secretion of the Ia-inducing factor(s). The characteristics and the kinetics of secretion of the Ia-inducing factor were similar to that of an interferon-like activity, but not of interleukin 2. Con A-induced supernatants from IEL and spleen cells were also capable of suppressing the growth of IEC 17 cells. The results of this study indicate that IEL, because of their close association with intestinal epithelial cells, may be involved in modulating a variety of epithelial cell functions, including the expression of Ia antigens. This leads us to speculate that Ia-positive epithelial cells, like Ia-positive macrophages and dendritic cells, may be involved in antigen presentation to T lymphocytes.