The transcription factor Foxp3 is involved in the differentiation, function and survival of CD4+CD25+ regulatory T (T(reg)) cells. Details of the mechanism underlying the induction of Foxp3 expression remain unknown, because studies of the transcriptional regulation of the Foxp3 gene are limited by the small number of T(reg) cells in mononuclear cell populations. Here we have generated a model system for analyzing Foxp3 induction and, by using this system with primary T cells, we have identified an enhancer element in this gene. The transcription factors Smad3 and NFAT are required for activity of this Foxp3 enhancer, and both factors are essential for histone acetylation in the enhancer region and induction of Foxp3. These biochemical properties that define Foxp3 expression explain many of the effects of transforming growth factor-beta on the function of Foxp3+ T(reg) cells.