The role of IFN-gamma in the pathogenesis of autoimmune disease is controversial, being described as immunostimulatory in some studies and immunosuppressive in others. To determine the contribution of local expression of IFN-gamma, we derived NOD.H-2(h4) transgenic mice overexpressing IFN-gamma in a thyroid-restricted manner. Transgenic mice, which had serum IFN-gamma levels similar to wild-type littermates, showed up-regulation of MHC class II on thyrocytes, but did not develop spontaneous thyroiditis. Upon immunization with murine thyroglobulin, transgenic mice developed milder disease and reduced IgG1 responses compared with wild type. The milder disease was associated with decreased frequency of activated CD44(+) lymphocytes in the cervical lymph nodes. This suppressive effect was confirmed by showing that blockade of systemic IFN-gamma with mAb enhanced disease and increased IgG1 responses. The study supports a disease-limiting role of IFN-gamma in autoimmune thyroiditis. Furthermore, it provides the first evidence that local IFN-gamma activity in the thyroid is sufficient for disease suppression.