Recent studies have shown the feasibility of using Toxoplasma gondii as an expression system for heterologous protein. For better understanding of the mechanism of interferon-gamma (IFN-gamma) dependent immunity to T. gondii, the parasites were stably transfected with IFN-gamma gene, under control of the GRA1 promoter. Immunofluorescence analyses showed that recombinant mouse IFN-gamma localised to discrete punctuate structures consistent with dense granules and secreted into the vacuolar space. The production of IFN-gamma was detectable in both extracellular parasites and the parasite-infected cells. Growth of the recombinant parasites was inhibited in the mouse macrophage cell line (J774A.1 cells), but not in monkey kidney adherent fibroblasts (Vero cells), demonstrating the species-specificity of IFN-gamma. Addition of anti-mouse IFN-gamma antibody resulted in growth recovery of the recombinant parasites, suggesting that IFN-gamma, secreted from the parasitised host cells across the parasitophorous vacuole membrane, acted in a paracrine manner. Reverse transcription (RT)-PCR analysis revealed significant expression of inducible nitric oxide synthase mRNA and high levels of nitric oxide production in recombinant parasite-infected J774A.1 cells. A competitive inhibitor of the L-arginine-dependent effector pathway, N(G)-monomethyl-L-arginine, inhibited the reduction of recombinant parasite growth in J774A.1 cells. Taken together, our data suggest that the T. gondii expression system may provide a new tool for cytokine gene expression and that parasites engineered to express a cytokine gene may be rationally designed for use in studies on immune responses to T. gondii.