We have previously investigated the physiological effects of IFN-beta on chronic CNS inflammation and shown that IFN-beta(-/-) mice develop a more severe experimental autoimmune encephalomyelitis than their IFN-beta(+/-) littermates. This result was shown to be associated with a higher activation state of the glial cells and a higher T cell cytokine production in the CNS. Because this state suggested a down-regulatory effect of IFN-beta on CNS-specific APCs, these results were investigated further. We report that IFN-beta pretreatment of astrocytes and microglia (glial cells) indeed down-modulate their capacity to activate autoreactive Th1 cells. First, we investigated the intrinsic ability of glial cells as APCs and report that glial cells prevent autoreactive Th1 cells expansion while maintaining Ag-specific T cell effector functions. However, when the glial cells are treated with IFN-beta before coculture with T cells, the effector functions of T cells are impaired as IFN-gamma, TNF-alpha, and NO productions are decreased. Induction of the T cell activation marker, CD25 is also reduced. This suppression of T cell response is cell-cell dependent, but it is not dependent on a decrease in glial expression of MHC class II or costimulatory molecules. We propose that IFN-beta might exert its beneficial effects mainly by reducing the Ag-presenting capacity of CNS-specific APCs, which in turn inhibits the effector functions of encephalitogenic T cells. This affect is of importance because activation of encephalitogenic T cells within the CNS is a prerequisite for the development of a chronic progressive CNS inflammation.