An elusive goal in transplanting organs across histocompatibility barriers has been the induction of specific tolerance to avoid graft rejection. A considerable body of evidence exists that the thymus produces regulatory T cells that suppress the response of other T cells to antigenic stimulation. We report that TGF-beta can induce certain CD4+ T cells in the naive (CD45RA+RO-) fraction in human peripheral blood to develop powerful, contact-dependent suppressive activity that is not antagonized by anti-TGF-beta or anti-IL-10 mAbs. The costimulatory effects of TGF-beta on naive CD4+ T cells up-regulated CD25 and CTLA-4 expression, increased their transition to the activated phenotype, but decreased activation-induced apoptosis. Suppressive activity was concentrated in the CD25+ fraction. These CD4+CD25+ regulatory cells prevented CD8+ T cells from proliferating in response to alloantigens and from becoming cytotoxic effector cells. Moreover, these regulatory cells exerted their suppressive activities in remarkably low numbers and maintained these effects even after they are expanded. Once activated, their suppressive properties were Ag nonspecific. Although <1% of naive CD4+ T cells expressed CD25, depletion of this subset before priming with TGF-beta markedly decreased the generation of suppressive activity. This finding suggests that CD4+CD25+ regulatory T cells induced ex vivo are the progeny of thymus-derived regulatory T cells bearing a similar phenotype. The adoptive transfer of these regulatory T cells generated and expanded ex vivo has the potential to prevent rejection of allogeneic organ grafts.