The carefully orchestrated events that result in a protective immune response are coordinated to a large extent by cytokines produced by Th1 and Th2 cell subsets. Th1 cells preferentially produce IL-2 and IFN-gamma, resulting in a cellular response that helps to eliminate infected cells. In contrast, Th2 cells produce IL-4, IL-5, IL-6, and IL-10, stimulating an Ab response that attacks extracellular pathogens, thereby preventing the cells from becoming infected. To elucidate the mechanisms of differential regulation of cytokine genes by these two different subsets of T cells, we established an in vitro differentiation model of freshly isolated human peripheral blood T cells in which IFN-gamma was used as an index gene to study the transcriptional regulation. The data presented here demonstrate that the IFN-gamma promoter undergoes differential methylation during in vitro differentiation: the promoter becomes hypermethylated in Th2 cells, whereas it is hypomethylated in Th1 cells. Hypermethylation in Th2 cells results in chromatin condensation and exclusion of CREB proteins from the IFN-gamma promoter. Treatment with 5-azacytidine, a demethylating agent, causes Th2 cells to reverse histone condensation and enables CREB recruitment to the hypomethylated promoter. This results in the increased production of IFN-gamma. These data indicate the importance of promoter methylation in the regulation of the IFN-gamma gene during differentiation.