The oxidative metabolism of L-arginine to its bioactive product, nitric oxide (.N = O) has been shown to inhibit rat splenocyte mixed lymphocyte reactions. To determine if alloantigen-induced .N = O production might be operative in vivo, cells that had infiltrated a rat sponge matrix allograft were tested for de novo .N = O production as well as .N = O production upon restimulation with the sensitizing alloantigen. When graft-infiltrating cells were placed in culture, a peak in de novo .N = O production was observed by day 6 graft-infiltrating cells, the time when donor-specific CTL activity by the graft-infiltrating cells was first observed. Upon restimulation with alloantigen, allograft-infiltrating cells produced greatly increased levels of .N = O, and this production was associated with inhibition of lymphocyte cytolytic function. The addition of NG-monomethyl-L-arginine (NMA), the competitive inhibitor of oxidative L-arginine metabolism, inhibited .N = O production and promoted allospecific CTL development. Both observed effects of NMA were reversed by addition of excess L-arginine. Cytokine(s) able to induce proliferation of the IL-2-dependent T cell line CTLL-2 could be detected in alloantigen-stimulated cultures in both the presence and absence of NMA. However, proliferation of the graft-infiltrating cells in response to these cytokines was observed only in the presence of NMA. The immunosuppressive macrolide FK506 was a potent inhibitor of .N = O production in these cultures, presumably acting by inhibiting the production of those cytokines that induce the oxidative L-arginine pathway.