We investigated potential mechanisms by which lymphocytes infiltrating rheumatoid synovium become immunosuppressed. In 20 of 22 synovial fluids and 12 of 13 synovial tissue culture supernatants, no IL-1 bioactivity could be detected in the thymocyte proliferation assay. These same preparations could, however, support proliferation of fibroblast monolayers, consistent with the presence of IL-1 and/or other fibroblast growth factors. Addition of either rheumatoid synovial fluids or synovial culture supernatants to exogenous IL-1 in the IL-1 bioassay caused marked inhibition of the assay indicative of an IL-1 inhibitor. This inhibition of IL-1 could be reversed by treating the effusions or supernatants with a neutralizing antibody to transforming growth factor-beta (TGF-beta). Furthermore, monocyte-macrophages isolated from rheumatoid synovial fluid constitutively released both latent and active TGF-beta in culture at levels sufficient to completely block the biologic activity of 100 U/ml IL-1. The production of substantial levels of TGF-beta by synovial macrophages, as well as the apparent ability of these inflammatory macrophages to activate latent TGF-beta, implicates TGF-beta not only as an important inhibitor of IL-1-induced lymphocyte proliferation, but also as a key cytokine in promoting synovial fibroblast hyperplasia and pathology.