There have been substantial advances in understanding the events that regulate gene expression at the cellular and molecular level; however, there has been limited progress integrating this information to understand how biological systems function in vivo. For example, the anti‐inflammatory cytokine IL‐10 is thought to down‐regulate the effects of the pro‐inflammatory cytokine IFN‐γ on monocyte activation following LPS stimulation. However, the often‐postulated reciprocal regulation of IL‐10 gene expression by IFN‐γ has not been studied in vivo. Here we demonstrate that the regulation of IL‐10 gene expression has at least two phases following challenge with LPS or a gram‐negative organism. In C57BL/6 mice, early IL‐10 induction occurs independently of STAT‐1, while a delayed active repression of IL‐10 gene expression is critically dependent on STAT‐1, but only partially dependent upon IFN‐α/β and IFN‐γ. This in vivo IL‐10 production comes from blood monocytes, but not tissue macrophages, and cannot be reproduced in vitro. This study provides new insights into the regulation of IL‐10 following challenge with a gram‐negative organism, and highlights the importance of studying these cytokine regulatory pathways in vivo.