Molecular mechanisms that mediate signal transduction by growth inhibitory cytokines are poorly understood. Type I (α and β) interferons (IFNs) are potent growth inhibitory cytokines whose biological activities depend on induced changes in gene expression. IFN-α induced transient activation of phospholipase A2 in 3T3 fibroblasts and rapid hydrolysis of [3H]-arachidonic acid (AA) from prelabeled phospholipid pools. The phospholipase inhibitor, bromophenacyl bromide (BPB), specifically blocked IFN-induced binding of nuclear factors to a conserved, IFN-regulated enhancer element, the interferonstimulated response element (ISRE). BPB also caused a dose-dependent inhibition of IFN-α-stimulated ISRE-dependent transcription in transient transfection assays. Specific inhibition of AA oxidation by eicosatetraynoic acid prevented IFN-α induction of factors binding to ISRE. Treatment of intact cells with inhibitors of fatty acid cyclooxygenase or lipoxygenase enzymes resulted in amplification of IFN-α-induced ISRE binding and gene expression. Thus, IFN-α receptor-coupled AA hydrolysis may function in activation of latent factors by IFN-α and provides a system for studying the role of AA metabolism in transduction of growth inhibitory signals.