Pigment epithelium isolated from the eye possesses immunosuppressive properties such as regulatory T (Treg) cell induction; e.g., cultured retinal pigment epithelium (RPE) converts CD4(+) T cells into Treg cells in vitro. RPE constitutively expresses a novel immunosuppressive factor, CTLA-2alpha, which is a cathepsin L (CathL) inhibitor, and this molecule acts via RPE to induce Treg cells. To clarify CTLA-2alpha's role in the T cell response to RPE in ocular inflammation, we used the experimental autoimmune uveitis (EAU) animal model to examine this new immunosuppressive property of RPE. In EAU models, TGF-beta, but not IFN-gamma inflammatory cytokines, promotes the up-regulation of the expression of CTLA-2alpha in RPE. Similarly, CTLA-2alpha via RPE was able to promote TGF-beta production by the CD4(+) T cells. The RPE-exposed T cells (RPE-induced Treg cells) greatly produced TGF-beta and suppressed bystander effector T cells. There was less expression of CathL by the RPE-exposed T cells, and CathL-inhibited T cells were able to acquire the Treg phenotype. Moreover, CathL-deficient mice spontaneously produced Treg cells, with the increase in T cells potentially providing protection against ocular inflammation. More importantly, CD4(+) T cells from EAU in CathL knockout mice or rCTLA-2alpha from EAU animals were found to contain a high population of forkhead box p3(+) T cells. In both EAU models, there was significant suppression of the ocular inflammation. These results indicate that RPE secretes CTLA-2alpha, thereby enabling the bystander T cells to be converted into Treg cells via TGF-beta promotion.