The progranulin (PGRN) is known to protect regulatory T cells (Tregs) from a negative regulation by TNF-α, and its levels are elevated in various kinds of autoimmune diseases. Whether PGRN directly regulates the conversion of CD4+CD25-T cells into Foxp3-expressing regulatory T cells (iTreg), and whether PGRN affects the immunosuppressive function of Tregs, however, remain unknown. In this study we provide evidences demonstrating that PGRN is able to stimulate the conversion of CD4+CD25-T cells into iTreg in a dose-dependent manner in vitro. In addition, PGRN showed synergistic effects with TGF-β1 on the induction of iTreg. PGRN was required for the immunosuppressive function of Tregs, since PGRN-deficient Tregs have a significant decreased ability to suppress the proliferation of effector T cells (Teff). In addition, PGRN deficiency caused a marked reduction in Tregs number in the course of inflammatory arthritis, although no significant difference was observed in the numbers of Tregs between wild type and PGRN deficient mice during development. Furthermore, PGRN deficiency led to significant upregulation of the Wnt receptor gene Fzd2. Collectively, this study reveals that PGRN directly regulates the numbers and function of Tregs under inflammatory conditions, and provides new insight into the immune regulatory mechanism of PGRN in the pathogenesis of inflammatory and immune-related diseases.