Here we examined the role of interferon (IFN)-γ in regulating the Sonic hedgehog (Shh) pathway and cerebellar development in bigenic mice with temporal control of IFN-γ gene expression driven by a tetracycline- controllable promoter. In IFN-γ-expressing but not age-matched non-IFN-γ-expressing bigenic or control mice, development of the cerebellum was severely affected with the persistence and extensive proliferation of the external granule neuron layer (EGL) and infiltration with modest numbers of T-lymphocytes. Following induction of IFN-γ transgene expression, both total and tyrosine-phosphorylated signal transducer and activator of transcription (STAT)1 (the major transcriptional factor for IFN-γ), phosphorylated STAT3 and STAT5, and expression of a number of IFN-γ-regulated genes were significantly increased in cerebellum. In the cerebellum from IFN-γ-expressing but not age-matched non-IFN-γ- expressing mice, the level of Shh and Gli-1 but not Patched (Ptch) 1 RNA was increased as was the 19-kDa signaling product of the Shh precursor protein. In situ localization studies revealed ectopic expression of the Shh gene by the granule neurons. We conclude that IFN-γ directly affects the proliferation and fate of EGL neurons in the cerebellum by activating the Shh pathway and stimulating an autocrine growth response by these cells.