Although proinflammatory cytokines are key mediators of tissue damage during graft-versus-host disease (GVHD), IFNgamma has previously been attributed with both protective and pathogenic effects. We have resolved this paradox by using wild-type (wt), IFNgamma(-/-), and IFNgammaR(-/-) mice as donors or recipients in well-described models of allogeneic stem cell transplantation (SCT). We show that donor-derived IFNgamma augments acute GVHD via direct effects on (1) the donor T cell to promote T helper 1 (Th1) differentiation and (2) the gastrointestinal (GI) tract to augment inflammatory cytokine generation. However, these detrimental effects are overwhelmed by a protective role of IFNgamma in preventing the development of idiopathic pneumonia syndrome (IPS). This is the result of direct effects on pulmonary parenchyma to prevent donor cell migration and expansion within the lung. Thus, IFNgamma is the key cytokine differentially controlling the development of IPS and gastrointestinal GVHD after allogeneic SCT.