Regulatory T cells (Tregs) are a specialized subpopulation of T cells that act to suppress activation of other immune cells and thereby maintain immune system homeostasis, self-tolerance as well as control excessive response to foreign antigens. The mere concept of Tregs was the subject of significant controversy among immunologists for many years owing to the paucity of reliable markers for defining these cells and the ambiguity of the nature and molecular basis of suppressive phenomena. However, recent advances in the molecular characterization of this cell population have firmly established their existence and their vital role in the vertebrate immune system. Of interest, accumulating evidence from both humans and experimental animal models has implicated the involvement of Tregs in the development of graft-versus-host disease (GVHD). The demonstration that Tregs could separate GVHD from graft-versus-tumor (GVT) activity suggests that their immunosuppressive potential could be manipulated to reduce GVHD without detrimental consequence on GVT effect. Although a variety of T lymphocytes with suppressive capabilities have been reported, the two best-characterized subsets are the naturally arising, intrathymic-generated Tregs (natural Tregs) and the peripherally generated, inducible Tregs (inducible Tregs). This review summarizes our current knowledge of the generation, function and regulation of these two populations of Tregs during an immune response. Their role in the development of GVHD and their therapeutic potential for the prevention and treatment of GVHD will also be described.