Although T lymphocytes are the ultimate effectors of pancreatic beta cell destruction in autoimmune insulin-dependent diabetes, previous work has established that beta cell autoreactive T cells are generated in nonobese diabetic (NOD) mice as a result of APC dysfunctions. To determine if APC dysfunctions could result from developmental defects, we analyzed if macrophages (M phi) develop normally from NOD bone marrow stimulated with CSF-1 in the presence and absence of IFN-gamma. Due to interactions between the diabetogenic H-2g7 haplotype and background modifiers, NOD bone marrow cells were found to proliferate poorly to CSF-1 stimulation. IFN-gamma aberrantly increased CSF-1-stimulated proliferation of H-2g7 expressing bone marrow cells, although decreasing proliferation of bone marrow cells expressing diabetes resistant MHC haplotypes. FACS analysis indicated the diminished sensitivity of NOD hematopoietic precursors to CSF-1 was associated with a quantitative inability to generate phenotypically mature M phi. In addition to developmental defects, NOD M phi were also found to be functionally defective. Total MHC class I expression was aberrantly down-regulated in a tissue specific fashion in IFN-gamma-treated M phi from NOD mice, whereas MHC class I expression increased as expected in M phi from C57BL/KsJ (BKs) control mice. Total MHC class I expression also increased in IFN-gamma-treated M phi from NOR mice, a diabetes-resistant control strain that shares the H-2g7 haplotype of NOD, but contains BKs-derived genomic elements on chromosomes 2, 4, 11, and 12. This demonstrates differential trans-regulation of class I loci within the diabetogenic H-2g7 haplotype in NOD vs diabetes-resistant NOR mice. Aberrant down-regulation of MHC class I content in IFN-gamma-treated M phi from NOD mice was associated with decreased ability to activate CTL function. We propose these defects in M phi differentiation and function may interact with H-2g7 to generate APC in NOD mice that are unable to activate tolerogenic mechanisms, but remain capable of activating low level effector responses.