A survey is given of the immunomodulatory effects of interferon gamma (IFN-gamma) in inflammation. IFN-gamma influences the activity of macrophages, granulocytes, B-lymphocytes, suppressor-T-lymphocytes and natural killer cells as well as the production of prostaglandins and leukotrienes, bone resorption, collagen synthesis and expression of HLA class II antigens. Furthermore, the production of IFN-gamma in patients with chronic inflammatory diseases is described as well as the recent in vivo investigations concerning induction and inhibition of inflammation by IFN-gamma. Based on these investigations a hypothesis is presented which offers an explanation for the contradictory results concerning the effects of IFN-gamma in inflammation. According to this hypothesis IFN-gamma takes part in the elicitation of an inflammatory reaction. As soon as a high inflammation activity is reached the reaction is inhibited via a negative feedback. Therefore, exogenously applied IFN-gamma has a stimulating effect if inflammation activity is low. In contrary, IFN-gamma inhibits this reaction if activity is high. The consequences resulting from this dual mode of action for the treatment of different diseases with IFN-gamma are discussed.