We previously reported that Ia+ monolayers of LEW rat corneal endothelial (CE) cells were unable to stimulate proliferation of MHC compatible T cell lines or IL-2 release from hybridomas, and inhibited [3H]-thymidine incorporation when added to conventional lymphocyte proliferation assays. Our purpose was to further analyze the mechanism of the inhibitory activity of CE cells on T lymphocyte activation. Mitogen-induced proliferative responses of splenocytes were found to be as susceptible to inhibition by CE cells as previously reported for antigen-specific activation of T cell lines. Antigen presenting cell (APC) antigen pulsing experiments showed that CE cells did not inhibit antigen processing. Flow cytometry and microscopic observation of the co-cultures revealed that T cells became activated in the presence of antigen, APC and CE cells, exhibiting morphologic changes of blast cell formation, although they did not divide unless given exogenous IL-2. However, if T cells were preactivated in the absence of CE cells, they were no longer susceptible to inhibition if subsequently transferred into CE cell-conditioned medium or onto CE cells. Evidence for an inhibitory factor in CE cell culture supernatant was revealed by two approaches: 1) addition of conditioned medium from CE cell cultures led to inhibition of lymphocyte proliferation assays, and 2) split-well assays also demonstrated the existence of a cell-free immunosuppressive factor produced by the CE cells. However, the inhibition mediated by supernatant alone was less potent than that by direct T cell contact with CE cells, implying that cell-cell interaction contributed to the inhibition. Indomethacin, a prostaglandin synthetase inhibitor, did not reverse CE cell-mediated inhibition. Neutralizing antibodies to TGF-beta 1 and 2 did not reverse the inhibition by CE cells. In summary, T cells received activation signals from APC in the presence of CE cells, but proliferation was inhibited unless exogenous lymphokine was added.