Human breast tumors are infiltrated by memory CD4⁺ T cells along with increased numbers of regulatory T cells (Treg) and plasmacytoid dendritic cells (pDC) that facilitate immune escape and correlate with poor prognosis. Here, we report that inducible costimulatory molecule (ICOS), a T cell costimulatory molecule of the CTLA4/PD1/CD28 family, is expressed mostly by tumor-associated Treg in primary breast tumors. A large proportion of these ICOS⁺ Treg were Ki67⁺ and this evident proliferative expansion was found to rely on interactions with tumor-associated pDC. Indeed, tumor-associated Treg highly expanded in presence of pDC but failed to proliferate under CD3/CD28 signal. In vitro experiments revealed that the addition of a neutralizing anti-ICOS antibody blocked pDC-induced Treg expansion and interleukin-10 secretion by memory CD4⁺ T cells, establishing a pivotal role for ICOS in this process. Supporting these findings, the presence of ICOS⁺ cells in clinical specimens of breast cancer correlated with a poor prognosis. Together, our results highlight an important relationship between Treg and pDC in breast tumors, and show that ICOS/ICOS-L interaction is a central event in immunosuppression of tumor-associated memory CD4⁺ T cells. These findings strongly rationalize antibody-mediated ICOS blockade as a powerful clinical strategy to correct immune escape and promote therapeutic responses in breast cancer. Cancer Res; 72(23); 6130–41. ©2012 AACR.