A major goal of immunotherapy for autoimmune diseases and transplantation is induction of regulatory T cells that mediate immunologic tolerance. The mucosal immune system is unique, as tolerance is preferentially induced after exposure to antigen, and induction of regulatory T cells is a primary mechanism of oral tolerance. Parenteral administration of CD3-specific monoclonal antibody is an approved therapy for transplantation in humans and is effective in autoimmune diabetes. We found that orally administered CD3-specific antibody is biologically active in the gut and suppresses autoimmune encephalomyelitis both before induction of disease and at the height of disease. Orally administered CD3-specific antibody induces CD4+ CD25- LAP+ regulatory T cells that contain latency-associated peptide (LAP) on their surface and that function in vitro and in vivo through a TGF-beta-dependent mechanism. These findings identify a new immunologic approach that is widely applicable for the treatment of human autoimmune conditions.