It is emerging that CD4+ Foxp3+ regulatory T (Treg) cells can produce the proinflammatory cytokine IFN-γ when stimulated in a Th1 cytokine environment. In this study, we report that Foxp3+ Treg cells readily produced IFN-γ in vivo in a highly inflammatory model of graft-versus-host disease (GVHD) and during a Th1-dominated immune response to intracellular bacteria. Moreover, stimulation in vitro via TCR in the presence of IL-12 alone was sufficient to induce IFN-γ production by Treg cells in a dose-dependent manner. Transfer of donor Treg cells can prevent lethal GVHD; therefore, we used this model as a robust readout for in vivo Treg function. Interestingly,> 50% of allogeneic donor, but not residual recipient Foxp3+ Treg cells produced IFN-γ after transplantation, suggesting that this cytokine production was alloantigen specific. These IFN-γ producers were stable Foxp3+ Treg cells because methylation analysis of the Foxp3 gene locus of transferred and reisolated Treg cells during GVHD showed a fully demethylated Treg-specific–demethylated region. Next, we addressed whether IFN-γ production was supporting or rather impairing the immunosuppressive function of Treg cells during GVHD. Blocking of IFN-γ with specific mAb completely abolished the beneficial effect of donor Treg cells. We could further show that only wild-type Treg cells, but not Treg cells from IFN-γ–deficient donor mice, prevented GVHD. This indicated that Treg cell-intrinsic IFN-γ production was required for their protective function. In conclusion, our data show that IFN-γ produced by Foxp3+ Treg cells has essential immune-regulatory functions that are required for prevention of experimental GVHD.