Phorbol esters activate the expression of a variety of early-response genes through protein kinase C-dependent pathways. In addition, phorbol esters may promote cell growth by the inhibition of expression of cellular gene products regulated by antiproliferative agents such as interferons (IFN)s. In human diploid fibroblasts, phorbol 12-myristate 13-acetate (PMA) selectively inhibits the IFN-α-induced cellular gene ISG54. Using transient transfection assays, we have delineated two elements in the promoter of this gene that are necessary for the inhibitory actions of PMA. These elements include (i) the IFN-stimulated response element (ISRE) which is necessary for IFN-α-induced cellular gene expression, and (ii) an element located near the site of transcription initiation. IFN-α treatment resulted in the rapid induction of ISGF3, a multisubunit transcription factor which binds to the ISRE. PMA caused a substantial reduction in IFNα-induced ISGF3 in both nuclear and cytoplasmic extracts, as determined by electrophoretic mobility shift assays with the ISRE as a probe. In vitro reconstitution experiments revealed that IFN-α activation of the ISGF3α component of ISGF3 was not affected by PMA. Further experiments were consistent with the possibility that PMA regulated the activity of a cellular factor which competed with ISGF3γ for binding of the activated ISGF3α polypeptides. Electrophoretic mobility shift assays using the cap site of ISG54 as a probe demonstrated the formation of a specific complex whose DNA binding activity was not affected by treatment of cells with PMA or IFN-α. Competitive inhibition studies were consistent with the DNA-protein complex at the cap site of ISG54 containing proteins with DNA binding sites in common with those which also interact with the ISRE. These data suggest a unique regulatory mechanism by which phorbol esters can modulate IFN signaling.