Although positive CD28 costimulation is needed for the generation of natural CD4+ CD25+ regulatory T cells, we report that negative CTLA-4 costimulation is necessary for generating phenotypically and functionally similar adaptive CD4+ CD25+ suppressor cells. TGF-β could not induce CD4+ CD25− cells from CTLA-4−/− mice to express normal levels of FoxP3 or to develop suppressor activity. Moreover, blockade of CTLA-4 following activation of wild-type CD4+ cells abolished the ability of TGF-β to induce FoxP3-expressing mouse suppressor cells. TGF-β accelerated expression of CTLA-4, and time course studies suggested that CTLA-4 ligation of CD80 shortly after T cell activation enables TGF-β to induce CD4+ CD25− cells to express FoxP3 and develop suppressor activity. TGF-β also enhanced CD4+ cell expression of CD80. Thus, CTLA-4 has an essential role in the generation of acquired CD4+ CD25+ suppressor cells in addition to its other inhibitory effects. Although natural CD4+ CD25+ cells develop normally in CTLA-4−/− mice, the lack of TGF-β-induced, peripheral CD4+ CD25+ suppressor cells in these mice may contribute to their rapid demise.