Dendritic cells (DC) are the major APC in human peripheral blood (PB) and rheumatoid synovium. We previously identified in PB a population of CD33dim-CD14dim DC precursors, as well as a smaller population of CD33bright CD14dim mature DC. Neither PB DC population expressed the CD28/CTLA4 ligands, suggesting that additional signals are required for full functional DC differentiation. Because rheumatoid synovium is characterized by an ongoing immune response, the expression and function of CD80, CD86, and other markers of DC differentiation by rheumatoid arthritis synovial APC were examined. The phenotype of a large subset of freshly isolated rheumatoid arthritis synovial fluid (SF) DC resembled that of the mature PB DC. These DC expressed CD45R0, CD11c, CMRF-44, and high levels of CD33. Whereas CD80 expression by rheumatoid SF DC and monocytes was minimal, CD86 was expressed by a subset of SF monocytes and by CMRF-44+SF DC. Furthermore, sorted CD86- SF DC spontaneously up-regulated CD86 in vitro. CD80 was expressed diffusely and at low levels by rheumatoid synovial tissue cells, whereas CD86 was expressed by perivascular HLA-DR+HLA-DQ+CD80+CMRF-44+ DC, and by some CD14+ monocytes. Anti-CD86 mAb and CTLA4 Ig, but not anti-CD80 mAb, inhibited the MLR stimulated by SF DC. Both CMRF-44+ and CMRF-44- SF DC were efficient stimulators of the allogeneic MLR, which was in each case blocked by CTLA4 Ig. The data indicate that rheumatoid synovial DC can undergo full functional differentiation, associated with CD86 expression, in vitro and in situ. Synovial DC expressing high levels of MHC molecules and CD86 are strategically located to present arthritogenic Ag to T cells after transendothelial migration.