Pretreatment of epidermal cells (EC) with hydrocortisone or dexamethasone abolishes their capacity to produce interleukin-1 (IL-1) and therefore reduces their capacity to support proliferative response of lectin-stimulated T cells. Additionally, glucocorticoid-pretreated keratinocytes produce an inhibitor of IL-1 activity. This factor is a non-dialysable product of radioresistant epidermal cells, does not represent a non-specific inhibitor of DNA synthesis and appears to be specific for IL-1 since it did not interfere with IL-2-dependent T-cell proliferation. It affects both IL-2 production and the induction of IL-2-receptor expression. Finally, it blocks binding of IL-1 to its receptors on D10S subclone as evaluated by competitive binding assay. Thus, we have provided evidence which indicates that immunosuppressive effects of glucocorticoids in the skin may also be mediated by an IL-1 receptor antagonist(s) produced by keratinocytes.