B7-1 (CD80) and B7-2 (CD86) are genetically and structurally related molecules expressed on antigen-presenting cells. Both bind CD28 to co-stimulate T lymphocytes, resulting in proliferation and cytokine production. The extracellular portions of B7-1 and B7-2 which bind to CD28 and CTLA-4 are related to Ig variable (V) and Ig constant (C) domain sequences. Recent reports have described splice variant forms of B7 proteins which occur in vivo and are of unknown function. Here we describe soluble recombinant forms of B7-1 and B7-2 containing either both of the Ig-like extracellular domains or the individual IgV or IgC domains coupled to an Ig Fc tail. Soluble B7-1 and B7-2 bind to CD28 and CTLA-4, and effectively co-stimulate T lymphocytes resulting in their proliferation and the secretion of cytokines. Furthermore, the IgV domain of B7-2 binds CD28 and CTLA-4, competes with B7-1 and B7-2 for binding to these receptors, and co-stimulates T lymphocytes. Cross-linked soluble B7-2v was the most potent co-stimulatory molecule tested and was active at a concentration approximately 100-fold lower than cross-linked soluble B7-1 or B7-2 proteins. When bound to tosyl-activated beads, B7-2v was capable of sustaining multiple rounds of T cell expansion. These data complement the description of naturally occurring variants to suggest that T cell co-stimulation in vivo may be regulated by soluble or truncated forms of B7 proteins.