Interferon-␥ (IFN-␥), a multifunctional cytokine produced by activated Th1 lymphocytes, exerts potent effects on the extracellular matrix by regulating fibroblast function. In this study, we examined the modulation of ␣1(I) procollagen gene (COL1A1) expression by recombinant IFN-␥. The results showed that IFN-␥ stimulated the rapid accumulation of interferon regulated factor (IRF)-1 mRNA, followed by a delayed and dose-dependent inhibition of ␣1(I) procollagen mRNA expression in skin fibroblasts from several different donors. The inhibitory response was abrogated in fibroblasts stably expressing IRF-1 in the antisense orientation. A marked decrease in the amount of heterogeneous nuclear pre-mRNA preceded the inhibition of COL1A1 mRNA expression. In fibroblasts transiently transfected with COL1A1 promoter-chloramphenicol acetyltransferase reporter gene plasmids, IFN-␥ selectively inhibited promoter activity and abrogated its stimulation induced by TGF-. The inhibition by IFN-␥ was not due to downregulation of TGF- receptor mRNA expression in the fibroblasts or decreased ligand binding to the receptor. IFN-␣ and IFN- by themselves had little effect on promoter activity, but IFN-␣ augmented the inhibitory effect of IFN-␥. Using a series of 5Ј deletion constructs, a proximal region of the COL1A1 promoter was shown to function as an IFN-␥ response element. This region of the gene harbors overlapping binding sites for transcription factors Sp1, Sp3, and NF-1 but no homologs of previously characterized IFN-␥ response elements. The putative IFN-␥ response region was sufficient to confer inhibition of reporter gene expression by treatment with IFN-␥. Gel mobility shift analysis showed that two distinct and specific DNA-protein complexes were formed when fibroblast nuclear extracts were incubated with oligonucleotides spanning the IFN-␥ response region. IFN-␥ did not modify the ability of nuclear proteins to bind to this region. The results indicate that IFN-␥ inhibits COL1A1 expression in fibroblasts principally at the level of gene transcription. Inhibition involves IRF-1 and is mediated through a short proximal promoter segment but without an apparent change in promoter occupancy. The findings provide novel insight into the mechanism of IFN-␥ regulation of fibroblast function.