Regulation of gene transcription by the cytokines tumor necrosis factor-alpha (TNF-alpha) and interferon-gamma (IFN-gamma) involves complex interactions between NF-kappaB and Stat families of transcription factors. The purpose of this study was to identify the spatial promoter requirements that govern cytokine synergy for gene transcription regulated by NF-kappaB and Stat factors. Using a set of transcription reporter-luciferase constructs, we show that the relative orientation of juxtaposed NF-kappaB-Stat (SIE) cis-elements determines the ability of TNF-alpha and IFN- gamma to induce gene transcription. Further, NF-kappaB and Stat1 proteins directly regulate transcription by interacting cooperatively on NF-kappaB-SIE DNA binding in response to TNF-alpha plus IFN-gamma. Coimmunoprecipitation provides evidence for a direct NF-kappaB/Stat1 protein-protein interaction. In contrast, IFN-gamma inhibits TNF-alpha-induced transcription of an NF-kappaB reporter gene in a Stat1-dependent mechanism in 2fTGH fibroblasts. Similarly, Stat1 is inhibitory to NF-kappaB overexpression-induced transcription. IFN-gamma and Stat1-dependent inhibition of NF-kappaB transcription occurs independent of TNF-alpha-induced NF-kappaB DNA binding. Interestingly, IFN-gamma pretreatment of 2fTGH fibroblasts potentiates TNF-alpha induction of Stat1 DNA binding. Further, ChIP analysis was applied to detect cytokine-induced in vivo binding and transcriptional regulation of the human inducible nitric oxide synthase (iNOS) gene by NF-kappaB and Stat1. These data demonstrate complex transcriptional regulatory mechanisms elicited by TNF-alpha and IFN-gamma and have potentially important implications for other genes differentially controlled by cytokines.