The goal of this study was to investigate how bacterial LPS affects macrophage responsiveness to the activating factor IFN-γ. Pretreatment of macrophages with LPS for< 2 h increased the transcriptional response to IFN-γ. In contrast, simultaneous stimulation with IFN-γ and LPS, or pretreatment with LPS for> 4 h, suppressed Stat1 tyrosine 701 phosphorylation, dimerization, and transcriptional activity in response to IFN-γ. Consistently, the induction of MHCII protein by IFN-γ was antagonized by LPS pretreatment. Neutralizing Abs to IL-10 were without effect on LPS-mediated suppression of Stat1 activation. Decreased IFN-γ signal transduction after LPS treatment corresponded to a direct induction of suppressor of cytokine signaling3 (SOCS3) mRNA and protein. Under the same conditions socs1, socs2, and cis genes were not transcribed. In transfection assays, SOCS3 was found to suppress the transcriptional response of macrophages to IFN-γ. A causal link of decreased IFN-γ signaling to SOCS3 induction was also suggested by the LPS-dependent reduction of IFN-γ-mediated Janus kinase 1 (JAK1) activation. Further consistent with inhibitory activity of SOCS3, LPS also inhibited the JAK2-dependent activation of Stat5 by GM-CSF. Our results thus link the deactivating effect of chronic LPS exposure on macrophages with its ability to induce SOCS3.