M12 B lymphomas expressing transfected Ak molecules with truncated cytoplasmic domains have a defect in Ag presentation to some autoreactive T cell hybrids. This defect in Ag presentation is corrected by pretreatment of the B cells with agents that elevate intracellular cAMP. Here we show that dibutyryl-cAMP treatment of M12 B lymphomas leads to cell surface expression of the costimulatory molecule B7. Furthermore, CTLA4Ig, a ligand for B7, inhibits activation of an accessory signal-dependent T hybrid. B7 is also inducible in M12 B lymphomas upon MHC-restricted interaction with T cells that can be activated by the APC, but not by T cells that fail to respond to truncated MHC-bearing M12 cells. Activation of the unresponsive T hybrids with immobilized anti-CD3 confers on them the ability to induce B7 in the APC. Direct engagement by immobilized antibodies of MHC class II on M12 B lymphomas did not induce B7 expression. Taken together, these results imply that during T-B interaction, initial T cell activation events lead to the ability of the T cell to induce costimulatory activity in the B cell, which in turn further activates the T cell. Activated T cell supernatants induced a small amount of B7 but were not nearly as effective as cAMP or as coincubation of T and B cells. These results suggest a role for T-B contact or localized cytokine secretion in the induction of B7 during T-B interaction.