T regulatory (Tr) cells are essential for the induction of peripheral tolerance. Several types of Tr cells exist, including CD4⁺ T cells which express CD25 constitutively and suppress immune responses via direct cell-to-cell interactions, and type 1 T regulatory (Tr1) cells, which function via secretion of interleukin (IL)-10 and transforming growth factor (TGF)-β. The relationship between CD25⁺CD4⁺ T cells and Tr1 cells remains unclear. Here, we demonstrate at the clonal level that Tr1 and CD25⁺CD4⁺ T cells are two distinct subsets of regulatory cells with different cytokine production profiles. Furthermore, CD25⁻CD4⁺ T cells can be rendered anergic by IL-10 and differentiated into Tr1 cells in the absence of CD25⁺CD4⁺ T cells. Cloned human CD25⁺CD4⁺ T cell populations are heterogeneous and only a subset of clones continues to express high levels of CD25 and is suppressive. The intensity of CD25, cytotoxic T lymphocyte antigen (CTLA)-4, and glucocorticoid-induced tumor necrosis factor (TNF) receptor expression correlates with the suppressive capacity of the T cell clones. None of the CD25⁺CD4⁺ T cell clones with suppressive function produce IL-10, but all produce TGF-β. Suppression mediated by CD25⁺CD4⁺ T cell clones is partially dependent on TGF-β, but not on constitutive high expression of CD25. Together these data indicate that naturally occurring human CD25⁺CD4⁺ T cells are distinct from IL-10–producing Tr1 cells.