Recently, considerable attention has been focused on thymus-derived CD4+ regulatory T cells that constitutively express CD25 and have a contact-dependent, cytokine-independent mechanism in vitro. However, peripheral CD4+ and CD8+ T cells can also be induced to become regulatory T cells. Here we review our studies using the combination of IL-2 and transforming growth factor beta (TGF-beta) to generate regulatory T cell subsets ex vivo, and the work of others using IL-10 to induce suppressive activity. Under certain conditions, the autocrine effects of TGF-beta and IL-10 induce peripheral T cells to produce immunosuppressive levels of each of these cytokines. This effect of TGF-beta is IL-2 dependent. Under other conditions IL-2 and TGF-beta can induce CD4+ cells to develop potent contact-dependent, cytokine-independent regulatory activity. At present, there is considerable confusion concerning the mechanism of action of CD4+ CD25+ cells because cytokine-producing regulatory T cells generated in the periphery can express CD25 and other markers displayed by naturally occurring, thymus-derived regulatory T cells. We, therefore, propose a nomenclature that identifies thymus-derived and peripheral regulatory cells, and that also differentiates T regulatory cells from T helper cells. Because T regulatory cells broadly control T helper cell reactivity, the mechanisms that control regulatory cell function are also reviewed. Finally, the potential use of regulatory T cells generated ex vivo as an adoptive immunotherapy for certain autoimmune diseases, to prevent organ graft rejection, or to prevent pathologic host responses to infectious agents is discussed.