There is no effective treatment for advanced hepatocellular carcinoma (HCC). We therefore explored the molecular mechanisms of interferon-gamma (IFN-gamma)-mediated growth regulation in human HCC cell lines. IFN-gamma receptor expression, signal transduction, and regulation of effectors were examined by RT-PCR, immunoprecipitation, immunoblotting, and reporter gene assays. Growth and apoptosis were determined based on cell numbers, cell cycle analyses, kinase assays, DNA fragmentation, and PARP cleavage. HCC cell lines express functionally intact IFN-gamma receptors and downstream effectors. IFN-gamma profoundly inhibited growth of HCC cells via two different mechanisms: inhibition of G1 cell cycle progression and induction of apoptosis. Analyses in SK-Hep-1 cells revealed a deficient cyclin D induction in IFN-gamma-treated cells, resulting in reduced activity of CDK4 and CDK2 kinases and pRB hypophosphorylation. In contrast, apoptosis prevailed in IFN-gamma-treated HepG2 cultures. A survey of apoptosis relevant IFN-gamma effectors including IRF-1, caspase-1, caspase-3, and p21(waf/cip-1) documented a dramatic transcriptional downregulation of p21(waf/cip-1) exclusively in apoptosis-susceptible HepG2 cells. Reconstitution of p21(waf/cip-1) rescued HepG2 cells from IFN-gamma-induced apoptosis, indicating that p21(waf/cip-1) reduction was required for apoptosis execution. Inversely, downregulation of p21(waf/cip-1) sensitized SK-Hep-1 cells to IFN-gamma-induced apoptosis. Thus, downregulation of p21(waf/cip-1) in HCC cells functions as a novel, critical determinant of alternative growth inhibitory pathways in response to IFN-gamma.