Recent reports suggest that a novel mechanism of glucocorticoid (GC) immunosuppressive action is inhibition of signaling by IL-2 and IL-12, cytokines that use the Janus kinase-STAT signaling pathway. We investigated whether GCs could also block activation of Janus kinase-STAT signaling by IFN-γ, a potent proinflammatory cytokine. Addition of dexamethasone to PBMC cultures resulted in a dramatic inhibition of IFN-γ activation of STAT1. Several days of exposure to GCs were required for inhibition of IFN-γ signaling to become apparent, and the underlying mechanism was down-regulation of STAT1 expression. GCs suppressed the expression of STAT1 mRNA, but did not affect STAT1 protein stability. STAT1 expression and IFN-γ signaling were preferentially suppressed in macrophages. GCs did not act directly on macrophages, but worked indirectly by regulating macrophage-lymphocyte interactions that control STAT1 expression. GCs inhibited IFN-γ-inducible gene expression, thus demonstrating the physiological significance of inhibition of signal transduction. Our results identify a novel level of regulation of IFN-γ signaling, whereby GCs control the amplitude of IFN-γ signaling by regulating STAT1 expression. These results suggest that inhibition of IFN-γ signaling contributes to the immunosuppressive action of GCs.