Cytotoxic T lymphocyte-associated antigen 4 (CTLA4) plays a critical role in down-regulating T cell responses. A number of autoimmune diseases have shown genetic linkage to the CTLA4 locus. We have cloned and expressed an alternatively spliced form of CTLA4 that has genetic linkage with type 1 diabetes in NOD mice. This splice variant of CTLA4, named ligand-independent CTLA4 (liCTLA4), lacks exon 2 including the MYPPPY motif essential for binding to the costimulatory ligands B7-1 and B7-2. liCTLA4 is expressed as a protein in primary T cells and strongly inhibits T cell responses by binding and dephosphorylating the TcRzeta chain. Expression of liCTLA4, but not full length CTLA4 (flCTLA4), was higher in memory/regulatory T cells from diabetes resistant NOD congenic mice compared to susceptible NOD mice. Transgenic expression of liCTLA4 in autoimmune prone Ctla4 -/- mice inhibited spontaneous T cell activation and prevented early lethality in the Ctla4 -/- mice. Thus, increased expression and negative signalling delivered by the liCTLA4 may play a critical role in regulating the development of T cell-mediated autoimmune diseases.