Costimulatory ligands CD80 and CD86 have different binding preferences and affinities to their receptors, CD28 and CTLA-4. Earlier, we demonstrated that CD80 binds to CTLA-4 with higher affinity and has a role in suppressing T cell response. The current study demonstrates that not only did blockade of CD86 upon Ag presentation by bone marrow-derived dendritic cells (DC) to OVA-specific T cells result in induction of hyporesponsive T cells but also that these T cells could suppress the proliferative response of effector T cells. These T cells showed TGF-β1 on their surface and secreted TGF-β1 and IL-10 upon restimulation. Although blockade of CTLA-4 and neutralization of IL-10 profoundly inhibited the induction of these TGF-β1+ T cells, their ability to suppress the effector T cell proliferation was abrogated by neutralization of TGF-β1 alone. Induction of TGF-β1+ and IL-10+ T cells was found to be independent of natural CD4+CD25+ regulatory T cells, demonstrating that preferential ligation of CTLA-4 by CD80 induced IL-10 production by effector T cells, which in turn promoted the secretion of TGF-β1. Treatment of prediabetic NOD mice with islet β cell Ag-pulsed CD86−/− DCs, but not CD80−/− DCs, resulted in the induction of TGF-β1- and IL-10-producing cells, significant suppression of insulitis, and delay of the onset of hyperglycemia. These observations demonstrate not only that CD80 preferentially binds to CTLA-4 but also that interaction during Ag presentation can result in IL-10-dependent TGF-β1+ regulatory T cell induction, reinstating the potential of approaches to preferentially engage CTLA-4 through CD80 during self-Ag presentation in suppressing autoimmunity.