Treatment of recombinant human interferon-gamma (IFN-gamma) with either 1) the arginine-specific proteases clostripain or submaxillaris protease or 2) the broadly specific enzyme pronase produced a stable fragment with m.w. of 15,500. Structural analysis showed that the cleavage occurred between residues 129 and 130 and thus produced a fragment lacking only 11 carboxyl-terminal amino acids. The fragmented and untreated molecules showed identical amino-terminal amino acid sequences and were equally reactive with either polyclonal or monoclonal anti-IFN-gamma. IFN-gamma lacking carboxyl-terminal amino acids displayed a 1000- to 2000-fold reduction in its capacity to bind to cellular IFN-gamma receptors at 4 degrees C. Functionally the fragment showed a 50-fold reduction in its ability to induce antiviral activity in fibroblasts and a 10-fold reduction in its ability to induce Fc receptors on the human histiocytic lymphoma cell line U937. These results thus suggest that the carboxyl terminus of human IFN-gamma contributes significantly to the formation of the receptor-binding site of the molecule.