There have been substantial advances in understanding the events that regulate gene expression at the cellular and molecular level; however, there has been limited progress integrating this information to understand how biological systems function in vivo. For example, the anti-inflammatory cytokine IL-10 is thought to down-regulate the effects of the pro-inflammatory cytokine IFN-gamma on monocyte activation following LPS stimulation. However, the often-postulated reciprocal regulation of IL-10 gene expression by IFN-gamma has not been studied in vivo. Here we demonstrate that the regulation of IL-10 gene expression has at least two phases following challenge with LPS or a gram-negative organism. In C57BL/6 mice, early IL-10 induction occurs independently of STAT-1, while a delayed active repression of IL-10 gene expression is critically dependent on STAT-1, but only partially dependent upon IFN-alpha/beta and IFN-gamma. This in vivo IL-10 production comes from blood monocytes, but not tissue macrophages, and cannot be reproduced in vitro. This study provides new insights into the regulation of IL-10 following challenge with a gram-negative organism, and highlights the importance of studying these cytokine regulatory pathways in vivo.