Multiple modes of suppressive mechanisms including IL-10 are thought to be implicated in CD4+ CD25+ regulatory T (Treg) cell-mediated suppression. However, the cellular source, role, and molecular mechanism of IL-10 in Treg cell biology remain controversial. We now studied the interaction between Treg cells and APCs. We demonstrate that Treg cells, but not conventional T cells, trigger high levels of IL-10 production by APCs, stimulate APC B7-H4 expression, and render APCs immunosuppressive. Initial blockade of B7-H4 reduces the suppressive activity mediated by Treg cell-conditioned APCs. Further, APC-derived, rather than Treg cell-derived, IL-10 is responsible for APC B7-H4 induction. Therefore, Treg cells convey suppressive activity to APCs by stimulating B7-H4 expression through IL-10. Altogether, our data provide a novel cellular and molecular mechanism for Treg cell-mediated immunosuppression at the level of APCs, and suggest a plausible mechanism for the suppressive effect of IL-10 in Treg cell-mediated suppression.