Regulatory T cells (Tregs) induced by oral tolerance may suppress immunity by production of TGF-beta that could also enhance Treg activity. However, all cells that are phenotypically Tregs in rats (CD4(+)CD45RC(high)-RC(high)) may not have regulatory function. Because Smad7 expression in T cells is associated with inflammation and autoimmunity, then lack of Smad7 may identify those cells that function as Tregs. We reported that feeding type V collagen (col(V)) to WKY rats (RT1(l)) induces oral tolerance to lung allografts (F344-RT1(lvl)) by T cells that produce TGF-beta. The purpose of the current study was to identify the Tregs that mediate col(V)-induced tolerance, and determine Smad7 expression in these cells. RC(high) cells from tolerant rats were unresponsive to allogeneic stimulation and abrogated rejection after adoptive transfer. In contrast, CD4(+)CD45RC(low) (RC(low)) cells from tolerant rats and RC(high) or RC(low) cells from normal rats or untreated allograft recipients proliferated vigorously in response to donor Ags, and did not suppress rejection after adoptive transfer. TGF-beta enhanced proliferation in response to col(V) presented to tolerant RC(high), but not other cells. In contrast to other cells, only RC(high) cells from tolerant rats did not express Smad7. Collectively, these data show that the Tregs that mediate col(V)-induced tolerance to lung allografts do not express SMAD7 and, therefore, are permissive to TGF-beta-mediated signaling.