We have examined the biologic characteristics and immunologic properties of epidermal cell-derived lymphocyte differentiating factor (ELDIF), a lymphocyte differentiating factor produced by cultured human keratinocytes. The ELDIF was semipurified by a gel filtration procedure. This factor, which is distinct from prostaglandins, epidermal cell-derived thymocyte activating factor (ETAF), and the well-known thymic hormones (thymulin, thymopoietin, and thymosin alpha 1) did not exhibit any interleukin (IL)-1, IL-2, or IL-3 activity. It strongly inhibited in vitro lymphoproliferative responses of normal mouse spleen cells to phytohemagglutinin, concanavalin A, and lipopolysaccharide. This dose-dependent phenomenon was associated with a suppression of IL-2 production rather than any toxic effect. It can be concluded that ELDIF, a product of human epidermal cells, which displays in vitro T-cell differentiation and regulatory activities, could be of major importance in vivo in the control of cutaneous inflammatory reactions.