The present experiments show that IFNgamma receptors are mainly localized to the basolateral membrane of human retinal pigment epithelium (RPE). Activation of these receptors in primary cultures of human fetal RPE inhibited cell proliferation and migration, decreased RPE mitochondrial membrane potential, altered transepithelial potential and resistance, and significantly increased transepithelial fluid absorption. These effects are mediated through JAK-STAT and p38 MAPK signaling pathways. Second messenger signaling through cAMP-PKA pathway- and interferon regulatory factor-1-dependent production of nitric oxide/cGMP stimulated the CFTR at the basolateral membrane and increased transepithelial fluid absorption. In vivo experiments using a rat model of retinal reattachment showed that IFNgamma applied to the anterior surface of the eye can remove extra fluid deposited in the extracellular or subretinal space between the retinal photoreceptors and RPE. Removal of this extra fluid was blocked by a combination of PKA and JAK-STAT pathway inhibitors injected into the subretinal space. These results demonstrate a protective role for IFNgamma in regulating retinal hydration across the outer blood-retinal barrier in inflammatory disease processes and provide the basis for possible therapeutic interventions.