The significance of cytokine production by CD4⁺ regulatory T (T reg) cells after antigen exposure in vivo and its impact on their regulatory activity remains unclear. Pretreatment with donor alloantigen under the cover of anti-CD4 therapy generates alloantigen reactive T reg cells that can prevent rejection of donor-specific skin grafts that are mediated by naive CD45RB^highCD4⁺ T cells. To examine the kinetics and importance of cytokine gene transcription by such alloantigen-reactive T reg cells, pretreated mice were rechallenged with donor alloantigen in vivo. CD25⁺CD4⁺ T cells, but not CD25⁻CD4⁺ T cells, showed a fivefold increase in IFN-γ mRNA expression within 24 h of reencountering alloantigen in vivo. This expression kinetic was highly antigen-specific and was of functional significance. Neutralizing IFN-γ at the time of cotransfer of alloantigen reactive T reg cells, together with CD45RB^highCD4⁺ effector T cells into Rag^−/− skin graft recipients, resulted in skin graft necrosis in all recipients; the generation and function of alloantigen-reactive T reg cells was impaired dramatically in IFN-γ–deficient mice. These data support a unique role for IFN-γ in the functional activity of alloantigen-reactive T reg cells during the development of operational tolerance to donor alloantigens in vivo.