Hairy cell leukemia (HCL) is one of the few malignancies for which α-interferon (IFNα) is considered effective first-line therapy. However, the mechanisms of action of this agent in vivo have been the subject of much debate; in particular, the issue of whether clinical improvement in IFNα-treated HCL patients is dependent upon enhancement of host defenses or upon direct actions of IFNα upon the hairy cell remains unresolved. In this review, we examine the evidence supporting both lines of argument and synthesize this information within the framework of clinical studies of IFNα in HCL, the purpose being to determine which proposed mechanisms of IFNα action are indeed effective in vivo. From our analysis, it appears that the beneficial effects of IFNα upon immune function are important in decreasing the frequency of infections complications of HCL but that these effects are probably not responsible for hairy cell elimination and cannot therefore account for major responses to IFNα therapy. We conclude that the primary mechanism of action of IFNα in HCL involves the induction of hairy cell differentiation towards a stage less responsive to growth factor stimulation, the primary consequence being proliferative inhibition. These effects may mimic events that occur during normal lymphocyte development, suggesting that the benefits of biotherapeutic agents might best be harnessed via studies of the effects of multiple and sequential biological response modifiers upon the growth and differentiation patterns of normal and malignant cells. Hairy cell leukemia could thus serve as an excellent model in which to investigate combined cancer biotherapy; the implications of our present understanding of IFNα in HCL to the biotherapy of cancer are discussed.