In this study we show that like MHC class I and class II molecules, cell surface CD1d expression on APC is regulated and affects T cell activation under physiological conditions. Although IFN-gamma alone is sufficient for optimum expression of MHC, CD1d requires two signals, one provided by IFN-gamma and a second mediated by microbial products or by the proinflammatory cytokine TNF. IFN-gamma-dependent CD1d up-regulation occurs on macrophages following infection with live bacteria or exposure to microbial products in vitro and in vivo. APC expressing higher CD1d levels more efficiently activate NKT cell hybridomas and primary NKT cells independently of whether the CD1d-restricted TCR recognizes foreign or self-lipid Ags. Our findings support a model in which CD1d induction regulates NKT cell activation.