The foreign body reaction is one of the oldest host defense mechanisms against tissue damage which involves inflammation, scarring, and encapsulation. The chemical carcinogen methylcholanthrene (MCA) induces fibrosarcoma and tissue damage in parallel at the injection site. Tumor development induced by MCA but not due to p53-deficiency is increased in interferon-γ receptor (IFN-γR)–deficient mice. In the absence of IFN-γR, MCA diffusion and DNA damage of surrounding cells is increased. Locally produced IFN-γ induces the formation of a fibrotic capsule. Encapsulated MCA can persist virtually life-long in mice without inducing tumors. Together, the foreign body reaction against MCA prevents malignant transformation, probably by reducing DNA damage. This mechanism is more efficient in the presence of IFN-γR. Our results indicates that inflammation and scarring, both suspected to contribute to malignancy, prevent cancer in certain situations.