Activation of the aryl hydrocarbon receptor (AhR) by its most potent ligand, 2,3,7,8-tetrachlorodibenzo-p-dioxin (TCDD), leads to immune suppression in mice. Although the underlying mechanisms responsible for AhR-mediated immune suppression are not known, previous studies have shown that activation of the AhR must occur within the first 3 days of an immune response and that CD4+ T cells are primary targets. Using the B6-into-B6D2F1 model of an acute graft-vs-host response, we show that activation of AhR in donor T cells leads to the generation of a subpopulation of CD4+ T cells that expresses high levels of CD25, along with CD62L(low), CTLA-4, and glucocorticoid-induced TNFR. These donor-derived CD4+ CD25+ cells also display functional characteristics of regulatory T cells in vitro. These findings suggest a novel role for AhR in the induction of regulatory T cells and provide a new perspective on the mechanisms that underlie the profound immune suppression induced by exposure to TCDD.