Interleukin-1alpha (IL-1alpha) is a potent proinflammatory cytokine constitutively expressed by keratinocytes, which also synthesize a specific inhibitor of IL-1 activity, intracellular IL-1 receptor antagonist (IL-1ra). Although homeostatic regulation of the IL-1 system in keratinocytes has long been suspected, there is currently little evidence for this. To explore this issue, the PAM212 murine keratinocyte cell line was exposed to increasing concentrations of either IL-1alpha or IL-1ra and the opposing ligand was assessed by ELISA. Release of IL-1ra was induced following stimulation by murine IL-1alpha in a concentration-dependent manner and, conversely, IL-1ra stimulation increased IL-1alpha release. To determine whether a similar homeostatic circuit operates in vivo, epidermis from transgenic mice in which overexpression of IL-1alpha or IL-1ra was targeted to keratinocytes was analyzed. Epidermal sheets derived from IL-1alpha transgenic mice released eight times more IL-1ra than those from wild-type mice following ex vivo culture and similarly, IL-1alpha release was increased 3-4-fold in epidermal sheets derived from IL-1ra transgenic epidermis, Use of specific neutralizing antibodies against type I and type II IL-1 receptors indicated that the counter-regulation mechanism is mediated extracellularly through the type I IL-1 receptor alone. Taken together, these observations provide the first demonstration of mutual counter-regulation of IL-1 receptor ligands in keratinocytes.