Type 1 regulatory T (Tr1) cells are inducible, interleukin (IL)-10+FOXP3− regulatory T cells that can suppress graft-versus-host disease (GvHD) after allogeneic hematopoietic stem cell transplantation (allo-HSCT). We have optimized an in vitro protocol to generate a Tr1-enriched cell product called T-allo10, which is undergoing clinical evaluation in patients with hematological malignancies receiving a human leukocyte antigen (HLA)–mismatched allo-HSCT. Donor-derived T-allo10 cells are specific for host alloantigens, are anergic, and mediate alloantigen-specific suppression. In this study, we determined the mechanism of action of T-allo10 cells and evaluated survival of adoptively transferred Tr1 cells in patients. We showed that Tr1 cells, in contrast to the non-Tr1 population, displayed a restricted T cell receptor (TCR) repertoire, indicating alloantigen-induced clonal expansion. Tr1 cells also had a distinct transcriptome, including high expression of cytotoxic T lymphocyte–associated protein 4 (CTLA-4) and programmed cell death protein 1 (PD-1). Blockade of CTLA-4 or PD-1/PD-L1 abrogated T-allo10–mediated suppression, confirming that these proteins, in addition to IL-10, play key roles in Tr1-suppressive function and that Tr1 cells represent the active component of the T-allo10 product. Furthermore, T-allo10–derived Tr1 cells were detectable in the peripheral blood of HSCT patients up to 1 year after T-allo10 transfer. Collectively, we revealed a distinct molecular phenotype, mechanisms of action, and in vivo persistence of alloantigen-specific Tr1 cells. These results further characterize Tr1 cell biology and provide essential knowledge for the design and tracking of Tr1-based cell therapies.