I n vivo, epithelial cells which line the intestine are intimately associated with lymphocytes, termed intraepithelial lymphocytes. Previous studies have demonstrated that intraepithelial lymphocytes are present in the uninflamed mucosa, and become especially prominent in various human enteropathies including coeliac disease, tropical sprue, dermatitis herpetiformis, and giardiasis. Using the intestinal crypt cell line T84, and a previously well-defined human mucosa-derived lymphocyte (MDL) line with phenotypic features similar to (but not specific for) intraepithelial lymphocytes, we describe a co-culture model to study the functional sequellae of MDL-T84 cell interactions in vitro. A co-culture method was defined which permitted reconstitution of the paracellular spaces of physiologically confluent epithelial monolayers with MDL. Such co-cultures thus mimicked the correct geometry of intraepithelial lymphocytes-epithelial cell interactions. The presence of physiologically positioned MDL brought about specific and dramatic effects on intestinal epithelial monolayer function. In a dose-dependent fashion, the presence of MDL significantly attenuated barrier function (expressed as a decrease in monolayer resistance), decreased epithelial electrogenic Cl- secretion, and modulated epithelial-neutrophil interactions. Such effects were not reproduced in monolayers similarly reconstituted with inert polystyrene beads equivalent in size to MDL. These MDL-elicited effects on epithelial function specifically required direct MDL apposition to the epithelial basolateral membrane. Furthermore, this specific form of MDL-epithelial basolateral contact released soluble factors which were able to confer the MDL-reconstituted phenotype on virgin epithelial monolayers in the absence of MDL. We have previously shown that many aspects of the MDL converted epithelial phenotype described here can be induced by IFN-gamma. While IFN-gamma, a cytokine produced by many lymphocytes including intraepithelial lymphocytes, was detectable in conditioned supernatants from co-cultures, it existed at concentrations insufficient to fully explain the physiologic effects observed here.