We have previously demonstrated that CD4⁺ CD25⁺ natural regulatory T cells (Treg cells) induce down‐modulation of CD80 and CD86 (B7) molecules on dendritic cells (DCs) in vitro. In this report we show that the extent of down‐modulation is functionally significant because Treg‐cell conditioned DCs induced poor T‐cell proliferation responses. Further, we report that down‐modulation was induced rapidly and was inhibited by blocking cytotoxic T lymphocyte antigen‐4 (CTLA‐4), which is constitutively expressed by the Treg cells. Even though Treg cells have previously been reported to kill antigen‐presenting cells, the down‐modulation was not due to selective killing of DCs expressing high level of the costimulatory molecules. We propose that Treg cells down‐modulate B7‐molecules on DCs in a CTLA‐4‐dependent way, thereby enhancing suppression of T‐cell activity.