We demonstrate diverse roles of IFN-gamma in the induction and regulation of immune-mediated inflammation using a transfer model of autoimmune diabetes. The diabetogenic CD4(+)BDC2.5 (BDC) T cell clone upon transfer into NOD.scid mice induced destruction of islets of Langerhans leading to diabetes. Administration of a neutralizing Ab to IFN-gamma (H22) resulted in long-term protection (LTP) from diabetes, with inflammation but persistence of a significant, albeit decreased, number of beta cells. BDC T cells were a mixture of cells expressing high, intermediate, and low levels of the TCR. Clonotype(low) BDC T cells were required for LTP. Furthermore, islet-infiltrating leukocytes in the LTP mice contained Foxp3(+)CD4 T cells. Islet inflammation in both diabetic and LTP mice was characterized by heavy infiltration of macrophages. Gene expression profiles indicated that macrophages in diabetic mice were M1 type, while LTP mice contained M2 differentiated. The LTP was abolished if mice were treated with either Ab-depleting CD4 T cells or a neutralizing Ab to CTLA-4, in this case, only at a late stage. Neutralization of IL-10, TGF-beta, glucocorticoid-induced TNF receptor (GITR), or CD25 had no effect. Transfer of only clonotype(high)-expressing BDC T cells induced diabetes; in contrast, H22 Abs did not inhibit diabetes. While clonotype(high) T cells induced diabetes even when IFN-gamma was neutralized, paradoxically there was reduced inflammation and no diabetes if host myeloid cells lacked IFN-gamma receptor. Hence, using monoclonal CD4 T cells, IFN-gamma can have a wide diversity of roles, depending on the setting of the immune process.