The question of whether heterosexual men, as observers, would perceive sexual interest in another male’s friendliness as a function of knowing he is gay was experimentally investigated. Thirty-six heterosexual male undergraduate students read vignettes featuring conversational interaction between two men. Sexual orientations of the characters were manipulated, and participants rated both characters on various trait terms, including an index of sexual interest. Measures of liking for characters and of attitudes toward gay men and being gay were also administered. As predicted, a gay character was rated to be more sexually interested in and to like his heterosexual co-actor, compared to when the same character was known to be heterosexual. Attitudes toward gay men and being gay predicted liking a gay character but failed to mediate the perception of sexual interest. Results are discussed in terms of social perception processes and suggestions for further investigation are presented.