Interferon gamma (IFN-gamma) is the most potent inducer of class II major histocompatibility complex (MHC) genes. This induction is uniquely mediated by three DNA elements in the promoter region of class II MHC genes. One of these DNA elements, Y, contains an inverted CCAAT box. Previously, we have screened a lambda gt11 library for Y-binding proteins and identified the YB-1 gene. Here we provide evidence that YB-1 can repress the IFN-gamma induction of class II MHC promoter as well as the Invariant chain (Ii) gene which also contains a Y element in its promoter. This was demonstrated by cotransfecting a YB-1 expression vector with promoter-reporter gene constructs. As an alternate approach, an efficient transient transfection system was developed which resulted in a > 70% transfection efficiency. Transfection of YB-1 by this procedure resulted in the near abrogation of IFN-gamma induced HLA-DR antigen and mRNA expression. These findings show the functional suppression of class II MHC gene induction by the YB-1 protein.