IL-21 is a recently identified cytokine that stimulates mouse NK cell effector functions in vitro. In this study we demonstrate that IL-21 achieves its stimulatory effect by inducing the development of mature NK cells into a large granular lymphocyte phenotype with heightened effector function. IL-21 treatment results in increased cell size and granularity and a corresponding decrease in cell viability and proliferative potential. These cells up-regulate the expression of the inhibitory CD94-NKG2A receptor complex and the activation markers CD154 and killer cell, lectin-like-receptor G1. Surprisingly, IL-21 treatment also results in down-regulation of the pan-NK marker, NK1. 1. Coinciding with these cellular changes IL-21 enhances cytolytic capacity across a spectrum of target sensitivities and induces IL-10 and IFN-γ production. In vivo treatment with IL-21 results in a very similar activation and phenotypic maturation of NK cells as well as a potent increase in NK cell-mediated anti-tumor immunity that is perforin dependent. These developmental changes suggested that IL-21 functions to induce the terminal differentiation of mouse NK cells, resulting in heightened NK cell-mediated cytotoxicity and immune surveillance.