Type I interferons (IFNs) directly induce development of Th1 cells. However, IFN-alpha and IFN-beta should generate Th2 cells because these IFNs induce interleukin-10 (IL-10) and block secretion of IFN-gamma. We hypothesized that paradoxical effects of IFNs on Th1-mediated immunity could be from monocyte-specific and T cell-specific IL-10 regulation. We demonstrate that IFN-alpha and IFN-beta inhibit IL-10 mRNA and protein production by activated monocytes but stimulate IL-10 production by activated T cells from the same healthy donors. Without IFN-beta, Staphylococcus aureus, Cowan strain I (SAC)-activated monocytes secreted 15-fold more IL-10 than phorbol myristate acetate (PMA) anti-CD3-activated T cells. With IFN-beta, the two subsets had nearly equivalent secretion. Prostaglandin (PGE) and other cAMP agonists had subset-specific effects on IL-10 production opposite to IFN-beta. The differential IFN-beta effect on transcriptional regulation of IL-10 in monocytes and T cells was from lineage-specific modification of RNA stability. IFN-beta decreased the half-life of IL-10 mRNA in activated monocytes but prolonged the half-life in activated T cells. Subset-specific IL-10 regulation has important implications for Th1-mediated disease. When activated macrophages and microglia are in excess, as in rheumatoid joints or possibly in chronic multiple sclerosis brain lesions, IFNs may inhibit overall IL-10 production and worsen disease. When T cells outnumber monocytes, IFN-beta will induce IL-10 and ameliorate Th1-mediated disease.