Interferon tau is a type I IFN that was originally identified as a pregnancy recognition hormone produced by trophoblast cells. It is as potent an antiviral agent as IFN alpha and IFN beta, but lacks the toxicity associated with high concentrations of these IFNs in tissue culture and in animal studies. We recently showed that IFN tau, like IFN beta, can prevent the development of experimental allergic encephalomyelitis (EAE). We report here that IFN tau prevents EAE in mice by induction of suppressor cells and suppressor factors. Suppressor cells can be induced by IFN tau in tissue culture, and in vivo by either intraperitoneal injection or by oral administration to mice. Incubation of suppressor cells with myelin basic protein (MBP)-sensitized T cells blocked or delayed the MBP-induced proliferation. Further intraperitoneal injection of suppressor cells into mice blocked induction of EAE by MBP. Suppressor cells possessed the CD4 T cell phenotype, and produced soluble suppressor factors that inhibited MBP activation of T cells from EAE mice. The suppressor factors were found to be IL-10 and TGF beta, which acted synergistically to inhibit the MBP activation of T cells from EAE mice. These findings are important for understanding the mechanism(s) by which type I IFNs protect against autoimmune disease.