Activated monocytes play an important role in the pathogenesis of inflammatory arthritis. Blood monocytes which enter the inflamed joint become activated upon adherence to extracellular matrix and exposure to a complex inflammatory environment. We have analyzed the mechanism of monocyte activation by soluble factors present in inflammatory synovial fluid (SF). Greater than 75% of inflammatory SFs tested (a total of 22 fluids to date) increased cell surface expression and dramatically increased mRNA levels of monocyte activation markers Fc gamma RI, Fc gamma RIII, and HLA-DRA. This induction was not triggered by adherence, a known activating stimulus, and several lines of evidence showed that induction was not dependent upon interferon gamma (IFN-gamma). Induction was not prevented by neutralizing anti-IFN-gamma antibodies and IFN-gamma was not detected in the SFs using a sensitive enzyme-linked immunosorbent assay. The SFs also were not able to activate the IFN-gamma-activated transcription factor Stat1, thus providing further support for the absence of IFN-gamma. SFs did activate a related signal transducer and activator of transcription (STAT) family factor, termed Stat-SF, which bound specifically to the IFN-gamma response region (GRR), a well-characterized transcription element in the Fc gamma RI promoter. Based upon DNA-binding specificity and mobilities in gel shift assays, and reactivity with specific antisera, Stat-SF likely contains Stat3, or a closely related STAT family member. Neutralization of interleukin 6, a cytokine present in SFs which is known to activate Stat3, abolished the activation of Stat-SF and inhibited the induction of Fc gamma RI expression by SFs. These results demonstrate the activation of monocytes by inflammatory SF and suggest that monocyte activation at an inflammatory site may occur in the absence of IFN-gamma through the triggering of signal transduction pathways that activate STAT transcription factors.