We have previously demonstrated that granuloma macrophages from the foot pads of Mycobacterium leprae-infected nude mice are functionally normal despite heavy intracellular burdens of bacilli. However, unlike peritoneal macrophages, these macrophages fail to restrict the intracellular growth of Toxoplasma gondii when stimulated with recombinant murine gamma interferon (Mu IFN-γ) and thus appear defective in their response to macrophage-activating factor(s). In further characterizing this defect we have examined tumoristatic capacity, superoxide radical formation, and expression of Ia antigens on granuloma macrophages before and after treatment with Mu IFN-γ. By all three criteria, M. leprae-burdened granuloma macrophages failed to become activated by doses of Mu IFN-γ that readily activate peritoneal macrophages from M. leprae-infected nude mice or normal Balb/c mice. M. leprae-infected granuloma macrophages produced elevated levels of prostaglandin E2 (PGE2) in vitro, which was suppressed by indomethacin. However, the inhibition of PGE2 production for 48 hr in vitro did not restore normal responses to Mu IFN-γ.