CD4⁺CD25⁺ T-regulatory cells (Tregs) play an essential role in maintaining immunologic homeostasis and preventing autoimmunity. However, little is known about the exogenous factors that regulate their differentiation and function. Here, we report that TNF inhibits the suppressive function of both naturally occurring CD4⁺CD25⁺ Tregs and TGFβ1-induced CD4⁺CD25⁺ T-regulatory cells. The mechanism of this inhibition involves signaling through TNFRII that is constitutively expressed selectively on unstimulated Tregs and that is up-regulated by TNF. TNF-mediated inhibition of suppressive function is related to a decrease in FoxP3 mRNA and protein expression by the Tregs. Notably, CD4⁺CD25^hi Tregs isolated from patients with active rheumatoid arthritis (RA) expressed reduced levels of FoxP3 mRNA and protein and poorly suppressed the proliferation and cytokine secretion of CD4⁺ effector T cells in vitro. Treatment with anti-TNF antibody (infliximab) increased FOXP3 mRNA and protein expression by CD4⁺CD25^hi Tregs and restored their suppressive function. Thus, TNF has a novel action in modulating autoimmunity, by inhibiting CD4⁺CD25⁺ Treg activity. (Blood. 2006;108:253-261)