We have studied the immunomodulatory properties of epithelial cells from the small intestine on T cell immune function in vitro. Proliferation of lymph node cells stimulated either with antigen or with mitogen was inhibited by epithelial cells in a dose-dependent fashion. The epithelial cell-mediated suppression of lymphocyte proliferation was blocked by indomethacin, a cyclooxygenase pathway inhibitor, demonstrating that the suppressive effect of epithelial cells was related to prostaglandin secretion. Furthermore, the action of epithelial cell-secreted prostaglandin on lymphocytes was related to its effect on IL-2 as the suppressive effect of epithelial cells was abrogated by the addition of exogenous IL-2. As previously reported, epithelial cells constitutively express MHC class II and we found them able to present antigen in a class II-restricted fashion when their suppressive effects were blocked by indomethacin. Furthermore, epithelial cells activated by LPS secrete an IL-1 like molecule in a fashion analogous to other antigen-presenting cells. These results demonstrate that epithelial cells can both enhance and suppress in vitro T cell immune responses and further characterize the mechanisms by which intestinal epithelial cells may function in gut-associated immune responses.