The early events that occur after treatment of the highly interferon alpha (IFN-alpha)-sensitive human lymphoblastoid Daudi cell line with human leukocyte IFN-alpha have been examined. IFN-alpha treatment of Daudi cells results in a rapid and transient increase in the cellular content of diacylglycerol, which occurs in the absence of inositol phospholipid turnover, or an increase in intracellular calcium concentration. Furthermore, IFN-alpha treatment results in a selective, time-dependent activation of the Ca(2+)-independent epsilon isoform of protein kinase C (PKC), while the alpha isoform is unaffected by IFN-alpha treatment. In contrast, IFN-alpha treatment of an IFN-resistant subclone of Daudi cells had no effect on the diacylglycerol content of cells and on the activation of PKC-epsilon. The selective PKC inhibitor staurosporine blocked the transcriptional activation of IFN-alpha-stimulated genes, the cytoplasmic accumulation of mRNAs for these genes, and the induction of antiviral activity by IFN-alpha against vesicular stomatitis virus in IFN-sensitive cells. These observations suggest that transmembrane signaling of IFN-alpha involves diacylglycerol production and activation of PKC-epsilon in Daudi cells.