To examine the role of CTLA-4 in Th cell differentiation, we used two newly generated CTLA-4-deficient (CTLA-4-/-) mouse strains: DO11. 10 CTLA-4-/- mice carrying a class II restricted transgenic TCR specific for OVA, and mice lacking CTLA-4, B7.1 and B7.2 (CTLA-4-/- B7.1/B7.2-/- ). When purified naive CD4+ DO11.10 T cells from CTLA-4-/- and wild-type mice were primed and restimulated in vitro with peptide Ag, CTLA-4-/- DO11.10 T cells developed into Th2 cells, whereas wild-type DO11.10 T cells developed into Th1 cells. Similarly, when CTLA-4-/- CD4+ T cells from mice lacking CTLA-4, B7. 1, and B7.2 were stimulated in vitro with anti-CD3 Ab and wild-type APC, these CTLA-4-/- CD4+ T cells produced IL-4 even during the primary stimulation, whereas CD4+ cells from B7.1/B7.2-/- mice did not produce IL-4. Upon secondary stimulation, CD4+ T cells from CTLA-4-/- B7.1/B7.2-/- mice secreted high levels of IL-4, whereas CD4+ T cells from B7.1/B7.2-/- mice produced IFN-gamma. In contrast to the effects on CD4+ Th differentiation, the absence of CTLA-4 resulted in only a modest effect on T cell proliferation, and increased proliferation of CTLA-4-/- CD4+ T cells was seen only during secondary stimulation in vitro. Administration of a stimulatory anti-CD28 Ab in vivo induced IL-4 production in CTLA-4-/- B7.1/B7.2-/- but not wild-type mice. These studies demonstrate that CTLA-4 is a critical and potent inhibitor of Th2 differentiation. Thus, the B7-CD28/CTLA-4 pathway plays a critical role in regulating Th2 differentiation in two ways: CD28 promotes Th2 differentiation while CTLA-4 limits Th2 differentiation.