Evidence indicates that cytotoxic T lymphocyte–associated antigen 4 (CTLA-4) may negatively regulate T cell activation, but the basis for the inhibitory effect remains unknown. We report here that cross-linking of CTLA-4 induces transforming growth factor β (TGF-β) production by murine CD4⁺ T cells. CD4⁺ T helper type 1 (Th1), Th2, and Th0 clones all secrete TGF-β after antibody cross-linking of CTLA-4, indicating that induction of TGF-β by CTLA-4 signaling represents a ubiquitous feature of murine CD4⁺ T cells. Stimulation of the CD3–T cell antigen receptor complex does not independently induce TGF-β, but is required for optimal CTLA-4–mediated TGF-β production. The consequences of cross-linking of CTLA-4, together with CD3 and CD28, include inhibition of T cell proliferation and interleukin (IL)-2 secretion, as well as suppression of both interferon γ (Th1) and IL-4 (Th2). Moreover, addition of anti–TGF-β partially reverses this T cell suppression. When CTLA-4 was cross-linked in T cell populations from TGF-β1 gene–deleted (TGF-β1^−/−) mice, the T cell responses were only suppressed 38% compared with 95% in wild-type mice. Our data demonstrate that engagement of CTLA-4 leads to CD4⁺ T cell production of TGF-β, which, in part, contributes to the downregulation of T cell activation. CTLA-4, through TGF-β, may serve as a counterbalance for CD28 costimulation of IL-2 and CD4⁺ T cell activation.