We sought to investigate the effects of varicella-zoster virus (VZV) infection on gamma interferon (IFN-gamma)-stimulated expression of cell surface major histocompatibility complex (MHC) class II molecules on human fibroblasts. IFN-gamma treatment induced cell surface MHC class II expression on 60 to 86% of uninfected cells, compared to 20 to 30% of cells which had been infected with VZV prior to the addition of IFN-gamma. In contrast, cells that were treated with IFN-gamma before VZV infection had profiles of MHC class II expression similar to those of uninfected cell populations. Neither IFN-gamma treatment nor VZV infection affected the expression of transferrin receptor (CD71). In situ and Northern blot hybridization of MHC II (MHC class II DR-alpha) RNA expression in response to IFN-gamma stimulation revealed that MHC class II DR-alpha mRNA accumulated in uninfected cells but not in cells infected with VZV. When skin biopsies of varicella lesions were analyzed by in situ hybridization, MHC class II transcripts were detected in areas around lesions but not in cells that were infected with VZV. VZV infection inhibited the expression of Stat 1alpha and Jak2 proteins but had little effect on Jak1. Analysis of regulatory events in the IFN-gamma signaling pathway showed that VZV infection inhibited transcription of interferon regulatory factor 1 and the MHC class II transactivator. This is the first report that VZV encodes an immunomodulatory function which directly interferes with the IFN-gamma signal transduction via the Jak/Stat pathway and enables the virus to inhibit IFN-gamma induction of cell surface MHC class II expression. This inhibition of MHC class II expression on VZV-infected cells in vivo may transiently protect cells from CD4(+) T-cell immune surveillance, facilitating local virus replication and transmission during the first few days of cutaneous lesion formation.