The sphingosine 1-phosphate (S1P) receptor agonist FTY720 is well known for its immunomodulatory activity, sequestering lymphocytes from blood and spleen into secondary lymphoid organs and thereby preventing their migration to sites of inflammation. Because inflammation is critically dependent on a balance between Ag-specific Th/effector cells and T-regulatory cells, we investigated the effect of FTY720 on T-regulatory cell trafficking and functional activity. An increased number of CD4+/CD25+ T cells was found in blood and spleens of FTY720-treated mice, and transfer of these cells resulted in a significantly more pronounced accumulation in spleens but not lymph nodes after treatment, suggesting that this compound differentially affects the homing properties of T-regulatory cells compared with other T cell subsets. Indeed, CD4+/CD25+ T cells express lower levels of S1P1 and S1P4 receptors and demonstrate a reduced chemotactic response to S1P. Moreover, analysis of the functional response of FTY720-treated CD4+/CD25+ T cells revealed an increased suppressive activity in an in vitro Ag-specific proliferation assay. This correlated with enhanced function in vivo, with T-regulatory cells obtained from FTY720-treated mice being able to suppress OVA-induced airway inflammation. Thus, FTY720 differentially affects the sequestration of T-regulatory cells and importantly, increases the functional activity of T-regulatory cells, suggesting that it may have disease-modifying potential in inflammatory disorders.