We tested the influence of IFNgamma on proteasome activity in parental Hep G2 cells that do not metabolize ethanol, as well as in recombinant Hep G2-derived cells that express either or both alcohol dehydrogenase (ADH) and cytochrome P4502E1 (CYP2E1). IFNgamma treatment increased proteasome activity in VL-17A (ADH(+), CYP2E1(+)) and E-47 (CYP2E1(+)) cells, but not in Hep G2, VI-R2 (parental cells with empty vectors) or in VA-13 (ADH(+)) cells. Proteasome activation by IFNgamma correlated positively with the level of CYP2E1 activity. Treatment of VL-17A cells with agents that inhibit CYP2E1 or the inducible nitric oxide synthase (iNOS) or that prevent the formation of peroxynitrite also blocked proteasome activation by IFNgamma, indicating that the proteasome may be directly activated by products of CYP2E1 and iNOS catalysis. While IFNgamma treatment increased proteasome activity, it also decreased CYP2E1 activity. Both effects were mediated via the Janus kinase-signal transducer and activator of transcription 1 (JAK-STAT1) pathway, as both were blocked by the JAK2 inhibitor, tyrphostin AG 490. Ethanol treatment of VL-17A cells also caused a similar blockage of these same IFNgamma-mediated effects, by inhibiting STAT1 phosphorylation. This inhibition was largely due to ethanol metabolism, as 4-methylpyrazole, an ethanol metabolism inhibitor, restored IFNgamma-mediated STAT1 phosphorylation in ethanol-treated cells. Our results lead us to propose that IFNgamma initiates signal transduction, which alters the activities of CYP2E1 and iNOS, thereby producing reactive oxygen species. One of these oxidants, possibly peroxynitrite, may be directly involved in proteasome activation. Ethanol metabolism by VL-17A cells suppresses IFNgamma-mediated induction of proteasome activity, in part, by preventing STAT1 phosphorylation.