Before they can deliver their effector functions, CD4+ Th cells must differentiate into Th1 or Th2 subsets. We have prepared reporter transgenic mice that express the luciferase gene under the control of proximal (prox.IFN-gamma) and distal (dist.IFN-gamma) regulatory elements from the IFN-gamma promoter to permit investigation of mechanisms that regulate IFN-gamma gene transcription during Th cell differentiation. Precursor Th cells (pTh) contain high levels of cAMP response element binding protein-activation transcription factor-1 (CREB-ATF1) proteins that bind these promoter elements from the IFN-gamma gene, and these cells fail to express promoter activity. Restimulated effector Th (eTh) cells have reduced levels of CREB-ATF1 proteins, their nuclear extracts exhibit reduced CREB-ATF1 binding and greater Jun and Jun-ATF2 binding to dist.IFN-gamma), and eTh cells express promoter activity. CREB directly competes with effector T cell nuclear proteins for dist.IFN-gamma binding, and overexpression of CREB inhibits both prox.IFN-gamma- and dist.IFN-gamma-directed transcription in Jurkat T cells. IL-12-stimulated Thl differentiation increases dist.IFN-gamma activity in restimulated eTh1 cells; eTh1 nuclear extracts form increased levels of Jun-ATF2-dist.IFN-gamma complexes. Taken together, these data suggest that both de-repression and trans-activation contribute to the induction of IFN-gamma gene transcription during Th1 differentiation.