The phagosome is key to most macrophage functions. It is the site of degradation of particulate material, of bacterial killing and the generation of peptides for antigen presentation. Despite its role at the fulcrum of the innate and acquired immune systems, little is known about the physiology of this organelle in activated macrophages. In this study, we utilize fluorometric techniques to characterize functional alterations in the lumenal environment of the maturing phagosome following stimulation of macrophages with interferon-gamma and/or lipopolysaccharide. In addition to modulating the kinetics of phagosomal acidification, activation results in a phagosome with diminished hydrolytic activities that varies markedly with the activation status of the cell. Differential levels of proteolytic, lipolytic and beta-galactosidase activities were observed in the phagosome but not in the total lysosomal extract, indicating selective delivery of enzymes to the developing phagosome. Despite the suppression of hydrolytic activities observed in early phagosomes, late phagosomes exhibit an enhanced and protracted accumulation of lysosomal cargo. The data are consistent with limiting proteolysis in the early phagosome to maximize epitope generation and antigen presentation while sequestering the degradative capacity in the late phagolysosome.