In case-control studies of interactions between genetic and environmental exposures, differential misclassification of the environmental exposure with respect to disease status can introduce spurious heterogeneity of the stratum-specific odds ratios. In this paper, the authors identify conditions under which differential misclassification does not introduce bias in the interaction parameter when no multiplicative interaction is present, and it biases the interaction parameter toward the null value when a multiplicative interaction is present. The conditions are that (i) conditional on potential confounders, the environmental exposure is independent of the genotype among the controls, and (ii) misclassification of the environmental exposure is nondifferential with respect to the genotype. These conditions can be tested from the misclassified data in the control group, since a test of the independence of the genotype and the misclassified environmental exposure among the controls is a test of the joint hypothesis that conditions (i) and (ii) are both true. Therefore, the authors propose a two-step test for interaction which first tests conditions (i) and (ii) and then goes on to test for interaction, provided the first step hypothesis is not rejected. A summary test procedure to test for gene-environment interactions in the presence of misclassification, based on both a conventional test for interaction and the two-step test, is recommended, and is illustrated with data from a case-control study of the role of diet as a modifier of the association between a metabolic polymorphism and lung cancer. Am J Epidemiol 1998; 147:426–33.