The obligate intracellular parasite Toxoplasma gondii can actively infect any nucleated cell type, including cells from the immune system. The rapid transfer of T. gondii from infected dendritic cells to effector natural killer (NK) cells may contribute to the parasite's sequestration and shielding from immune recognition shortly after infection. However, subversion of NK cell functions, such as cytotoxicity or production of proinflammatory cytokines, such as gamma interferon (IFN-γ), upon parasite infection might also be beneficial to the parasite. In the present study, we investigated the effects of T. gondii infection on NK cells. In vitro, infected NK cells were found to be poor at killing target cells and had reduced levels of IFN-γ production. This could be attributed in part to the inability of infected cells to form conjugates with their target cells. However, even upon NK1.1 cross-linking of NK cells, the infected NK cells also exhibited poor degranulation and IFN-γ production. Similarly, NK cells infected in vivo were also poor at killing target cells and producing IFN-γ. Increased levels of transforming growth factor β production, as well as increased levels of expression of SHP-1 in the cytosol of infected NK cells upon infection, were observed in infected NK cells. However, the phosphorylation of STAT4 was not altered in infected NK cells, suggesting that transcriptional regulation mediates the reduced IFN-γ production, which was confirmed by quantitative PCR. These data suggest that infection of NK cells by T. gondii impairs NK cell recognition of target cells and cytokine release, two mechanisms that independently could enhance T. gondii survival.