TGF-beta is a potent regulator of immune functions both in vitro and in vivo. The majority of studies have examined changes in immune functions after the addition of TGF-beta that had been previously activated by acid treatment. Peripheral blood mononuclear cells (PBMC) and tumour cells can each produce latent TGF-beta. The role of endogenously produced latent TGF-beta as an autocrine or paracrine regulator of immune functions has not been extensively studied. Monoclonal antibody (mAb) 4A11 was used to detect and neutralize the activity of endogenous TGF-beta 1 produced during lymphocyte activation. We demonstrate that PBMC, after stimulation with interleukin 2 or phytohaemagglutinin-P/12-O-tetradecanoylphorbol 13-acetate, secrete significant quantities of latent TGF-beta 1. Addition of neutralizing mAbs specific for TGF-beta 1 enhances the proliferative response of the PBMC. CHO cell lines engineered to produce latent TGF-beta 1 were poor stimulators of cytotoxic T lymphocyte generation in vitro and significantly suppress natural killer cell activity in nu/nu mice. We conclude that mechanisms exist in vitro and in vivo to convert latent TGF-beta into an active form which can then regulate immune functions in an autocrine/paracrine manner. The possible role of latent TGF-beta produced by tumour cells in immune surveillance is discussed.