Multiple sclerosis is an immune-mediated brain disease ameliorated by interferon-beta therapy. Immune responses to IFN-alpha and IFN-beta are sometimes subnormal in MS peripheral blood mononuclear cells (MNCs), suggesting an underlying defect in type I IFN signaling. We studied IFN-beta regulation of mRNA and protein induction for IFN regulatory factor-1 (IRF-1) and IRF-2, which control multiple IFN-stimulated genes, and for 2',5'-oligoadenylate synthetase (2',5'-OAS) and MxA, which are antiviral proteins. First, mRNA levels in resting MNC from untreated patients with clinically active MS contained IRF-1 at 38% of normal controls, 45% for IRF-2, 44% for 2',5'-OAS (all p<0.005), and 46% for MxA protein (p<0.007). Stable MS patients had intermediate levels of 2',5'-OAS and MxA. IFN-beta-1b therapy increased IRF-1, IRF-2, and 2',5'-OAS mRNA in resting MNC-but only up to levels seen in unstimulated control cells. In untreated patients with active MS, serine phosphorylation of the STAT1 transcription factor was markedly reduced, suggesting a mechanism for the low levels of IFN-induced genes. Secondly, in untreated patients with stable MS, culture with IFN-beta induced excessive tyrosine phosphorylation of STAT1, and this correlated with low SHP1 tyrosine phosphatase levels. Excessive P-Tyr-STAT1 responses could induce inflammatory cytokines and demyelination in MS, as in motheaten mice, which have defects in SHP-1 function. Abnormal IFN signaling may predict the course of MS and responses to therapy.