The ocular pigment epithelial (PE) cells convert T cells into T regulators (Tregs) in vitro. The PE-induced Tregs fully suppress activation of bystander responder T cells. Iris PE (IPE) cells from anterior segment in the eye produce costimulatory molecules and transforming growth factor beta (TGFbeta) that is delivered to CD8(+) Tregs. We have now examined whether T cells exposed to cultured IPE express CD25 and Foxp3, and to determine if the CD25(+) IPE-exposed T cells display regulatory functions in vitro. We have found that cultured B7-2(+) IPE converted CTLA-4(+) T cells into CD25(+) Tregs that suppress the activation of bystander T cells. The CD8(+) IPE-induced Tregs constitutively expressed CD25. Through TGFbeta-TGFbeta receptor interactions, the IPE converted these T cells into CD25(+) Tregs that express Foxp3 transcripts. The CD8(+) IPE-induced Tregs produced immunoregulatory cytokines, e.g., interleukin-10 and TGFbeta. In addition, IPE-exposed T cells that downregulated Foxp3 mRNA failed to acquire the regulatory function. In conclusion, ocular pigment epithelial cells convert CD8(+) T cells into CD25(+) Tregs by inducing the transcription factor Foxp3. Thus, T cells that encounter ocular parenchymal cells participate in the T-cell suppression.