Recent studies have demonstrated that the proteasome, in addition to functioning in the complete degradation of cell proteins, is the source of most antigenic peptides presented to the immune system on major histocompatibility complex (MHC)-class I molecules. In this process, intracellular and viral proteins are degraded in the cytosol to 8- to 9-amino acid fragments, which are then transported into the endoplasmic reticulum, where they become associated with MHC-class I molecules and are thus delivered to the cell surface. A variety of evidence has shown that the proteasome and ATP-ubiquitin-dependent pathway are critical in this process: (1) In cells, selective inhibitors of proteasome function inhibit the bulk of protein degradation and thus prevent the generation of peptides necessary for class I presentation and the appearance of MHC on the cell surface. (2) Mutations that block ubiquitin conjugation prevent the generation of an antigenic peptide. (3) Modifications that lead to rapid degradation of a protein by the ubiquitin pathway enhance antigen presentation. (4) gamma-Interferon (gamma-IFN) induces new proteasome subunits, LMP2 and LMP7, encoded in the MHC region that are incorporated in place of constitutive proteasome subunits. Their incorporation does not affect rates of protein breakdown but causes changes in peptidase activities, i.e. they increase rates of cleavage after basic and hydrophobic residues and decrease cleavage after acidic residues. Transfections of cells with LMP2 or LMP7 cause similar changes in these peptidase activities as are caused by gamma-IFN. These modifications in peptidase activities should enhance the production of those types of peptides which are preferentially transported into endoplasmic reticulum and selectively bound to MHC-class I molecules.