B7-2 (CD86) costimulatory molecules are pivotal for the regulation of T cell responses. In this study, a novel human B7-2 alternate transcript (termed B7-2C) is described. This transcript is characterized by the deletion of exon 4 that encodes the IgV-like counter-receptor binding domain of the B7-2 protein (full-length; B7-2A). B7-2C was detected as mRNA and cell surface protein in human non-neoplastic salivary gland epithelial cells and monocytes, but not in fibroblasts, T cells, B cells, dendritic cells, and several epithelial tumor cell lines. In monocytes, B7-2C protein expression was found to be significantly down-regulated following activation. The analysis of Chinese hamster ovary (CHO) single-transfected (CHO-B7-2C) and double-transfected (CHO-B7-2A/B7-2C) cell lines had indicated that cell surface B7-2C expression is by itself unable to provide T cell costimulation, but inhibits the transmission of costimulatory signals via B7-2A (by 23-69%). Such inhibition was found to depend on the relative cell surface expression of B7-2A and B7-2C proteins, as it occurred in CHO-B7-2A/B7-2C transfectants with significantly lower B7-2A to B7-2C ratios (1.0-3.5), compared with those with unaffected B7-2A-mediated costimulatory function (10.0-19.5). Our findings suggest that B7-2C is expressed by monocytes, as well as by nonimmune cells with potential Ag-presenting capacity (such as salivary gland epithelial cells). The expression of B7-2C on certain B7-2A-expressing cells appears to represent a mechanism for the fine tuning of B7-2A-mediated costimulatory signals, possibly through the interruption of B7-2A clustering required for the productive interaction between B7-2A and cognate receptors.