Functional interactions between T and B lymphocytes are necessary for optimal activation of an immune response. Recently, the T lymphocyte receptor CD28 was shown to bind the B7 counter-receptor on activated B lymphocytes, and subsequently to costimulate interleukin 2 production and T cell proliferation. CTLA-4 is a predicted membrane receptor from cytotoxic T cells that is homologous to CD28 and whose gene maps to the same chromosomal band as the gene for CD28. It is not known, however, if CD28 and CTLA-4 also share functional properties. To investigate functional properties of CTLA-4, we have produced a soluble genetic fusion between the extracellular domain of CTLA-4 and an immunoglobulin C gamma chain. Here, we show that the fusion protein encoded by this construct, CTLA4Ig, bound specifically to B7-transfected Chinese hamster ovary cells and to lymphoblastoid cells. CTLA4Ig also immunoprecipitated B7 from cell surface 125I-labeled extracts of these cells. The avidity of 125I-labeled B7Ig fusion protein for immobilized CTLA4Ig was estimated (Kd approximately 12 nM). Finally, we show that CTLA4Ig was a potent inhibitor of in vitro immune responses dependent upon cellular interactions between T and B lymphocytes. These findings provide direct evidence that, like its structural homologue CD28, CTLA-4 is able to bind the B7 counter-receptor on activated B cells. Lymphocyte interactions involving the B7 counter-receptor are functionally important for alloantigen responses in vitro.