The Epstein-Barr virus (EBV) encodes an open reading frame with significant homology to the cellular IL-10 gene. This viral IL-10 (vIL-10) might enable EBV to evade antiviral T cells. We employed transfectants of a murine tumor cell line (P815) to investigate whether vIL-10 interferes with the first (antigenic) or second (co-stimulatory) signal of T cell activation. Untransfected P815 cells caused tumors in syngeneic DBA/2 mice after s.c. inoculation. In contrast, transfectants that provided either a strong antigenic stimulus (P815-Kb cells) or a strong co-stimulatory signal (P815-B7 cells) were rejected. Injection of double-transfected P815 cells expressing Kb and secreting high levels of vIL-10 (P815-Kb-vIL-10) did not result in tumor growth. We then investigated whether vIL-10 could paralyse co-stimulation by B7 under the same conditions. Therefore P815-B7 cells were mixed with vIL-10-secreting P815-Kb cells and co-injected into DBA/2 animals. Most of these mice developed a tumor. Explanted tumor cells expressed the B7 molecule but not the Kb antigen. These observations in vivo were mirrored by experiments in vitro: vIL-10 could induce T cell tolerance towards P815-B7 cells but not P815-Kb cells. Taken together our results suggest that vIL-10 acts directly on T cells to inhibit co-stimulatory signals mediated via B7 receptors such as CD28 or CTLA-4.