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Interferon gamma (IFN-gamma), a lymphokine that exerts multiple immunoregulatory effects, has been found to be elevated in the plasma, cerebrospinal fluid, and lymph nodes of human immunodeficiency virus (HIV)-infected individuals and has shown variable effects on HIV replication in acutely infected cells. In the present study, we have demonstrated that IFN-gamma is a potent modulator of HIV expression in persistently infected U1 promonocytic cells in which virus production is characterized by a constitutive state of relative latency. Direct stimulation of U1 cells with IFN-gamma (10-1,000 U/ml) activated HIV expression, as measured by reverse transcriptase (RT) activity in the culture supernatant and increased levels of cell-associated viral protein and mRNAs. These effects on virus expression were not accounted for by the induction of endogenous TNF-alpha secretion, as previously described in U1 cells stimulated with phorbol myristate acetate (PMA). At the ultrastructural level, the stimulatory activity of IFN-gamma was correlated with HIV particle production in intracytoplasmic vacuoles along with the differentiation of U1 into macrophage-like cells. Furthermore, costimulation of U1 cells with IFN-gamma and PMA significantly increased the accumulation of vacuole-associated HIV concomitant with decreasing membrane-associated particles and RT activity production, as compared with cells stimulated with PMA alone. No evidence of spontaneous secretion of intracellular vacuole- associated virus was obtained by kinetic analysis of the RT activity released in the supernatants throughout the culture period unless cells were deliberately disrupted. These findings suggest that vacuole- associated virions likely represent a relatively stable intracellular reservoir of HIV, as previously described in primary macrophages infected in vitro or in infected macrophages in the brains of patients with acquired immune deficiency syndrome. The reduced levels of RT activity observed in the culture supernatants of U1 cells stimulated with PMA in the presence of IFN-gamma were not indicative of a suppressive effect of IFN-gamma on PMA-induced expression of HIV proteins and mRNAs, either directly or mediated by the release of IFN- alpha/beta. This study suggests that IFN-gamma may play an important role as an inducer of HIV expression in infected mononuclear phagocytes.