Costimulation between T cells and APCs is required for adaptive immune responses. CD40, an important costimulatory molecule, is expressed on a variety of cell types, including macrophages and microglia. The aberrant expression of CD40 is implicated in diseases including multiple sclerosis, rheumatoid arthritis, and Alzheimer's disease, and inhibition of CD40 signaling has beneficial effects in a number of animal models of autoimmune diseases. In this study, we discovered that IL-10, a cytokine with anti-inflammatory properties, inhibits LPS-induced CD40 gene expression. We previously demonstrated that LPS induction of CD40 in macrophages/microglia involves both NF-kappaB activation and LPS-induced production of IFN-beta, which subsequently activates STAT-1alpha. IL-10 inhibits LPS-induced IFN-beta gene expression and subsequent STAT-1alpha activation, but does not affect NF-kappaB activation. Our results also demonstrate that IL-10 inhibits LPS-induced recruitment of STAT-1alpha, RNA polymerase II, and the coactivators CREB binding protein and p300 to the CD40 promoter, as well as inhibiting permissive histone H3 acetylation (AcH3). IL-10 and LPS synergize to induce suppressor of cytokine signaling (SOCS)-3 gene expression in macrophages and microglia. Ectopic expression of SOCS-3 attenuates LPS-induced STAT activation, and inhibits LPS-induced CD40 gene expression, comparable to that seen by IL-10. These results indicate that SOCS-3 plays an important role in the negative regulation of LPS-induced CD40 gene expression by IL-10.