An antibody reactive with CD38 revealed both phenotypic and functional heterogeneity amongst CD45RB^low cells. Functional analysis of the CD38⁺ and CD38⁻ fractions showed that the latter contained T cells which responded to recall antigens and produced high levels of cytokine in response to polyclonal stimulation. In contrast, the CD38⁺ population failed to proliferate or to produce detectable levels of cytokines. Despite appearing unresponsive, the CD38⁺ population significantly inhibited anti‐CD3‐induced proliferation and cytokine secretion by the reciprocal CD38⁻ population. Immune suppression required stimulation through the TCR and was dependent on a physical interaction between regulatory and responding CD4⁺ populations. It did not involve killing of the responding T cells or secretion of IL‐10 or TGF‐β. Despite some similarities there is no direct correlation between the in vitro suppression characteristic of the CD38⁺ CD45RB^low subset and in vivo suppression which has been shown to be mediated by unseparated CD45RB^low CD4⁺ T cells. However, these results demonstrate that two functionally distinct subsets of T cells reside within the antigen‐exposed or CD45RB^low CD4⁺ T cell population and are thus generated in vivo: (1) conventional memory T cells which proliferate and secrete cytokines in response to activation and (2) a population of regulatory T cells which inhibit T cell activation in vitro. Antibodies reactive with CD38 may provide a useful tool with which to study the role of these T cell subsets in the induction and regulation of the immune response.