Although there is considerable evidence that a subpopulation of regulatory CD4⁺CD25⁺ T cells can suppress the response of autoreactive T cells, the underlying molecular mechanism is not understood. We find that transmission of a suppressive signal by CD4CD25⁺ regulatory cells requires engagement of the B7 molecule expressed on target T cells. The response of T cells from B7-deficient mice is resistant to suppression in vitro, and these cells provoke a lethal wasting disease in lymphopenic mice despite the presence of regulatory T cells. Susceptibility of B7-deficient cells to suppression is restored by lentiviral-based expression of full-length, but not truncated, B7 lacking a transmembrane/cytoplasmic domain. Because expression of these B7 truncation mutants restores CD28-dependent costimulatory activity, these findings that indicate B7-based transmission of suppressive activity suggest new approaches to modifying autoimmune responses.