CD28 and CTLA-4 are the critical costimulatory receptors that predominantly determine the outcome of T cell stimulation, with CD28 promoting positive costimulation and CTLA-4 inducing inhibitory signals. Blockage of the B7-CD28/CTLA-4 pathway leads to transplantation tolerance. However, the exact mechanism of the inhibitory function of CTLA-4 remains elusive. Here, we investigated the influence of CTLA-4 expression on CD28 using CTLA-4-transfected Jurkat T cells as well as primary T cells. Up-regulation of CTLA-4 induced abrogation of IL-2 production, indicating an anergic phenotype of CTLA-4(high) T cells. Besides the negative signaling function of CTLA-4, we show for the first time that CTLA-4 expression promotes the down-regulation of CD28 on the T cell surface as a result of enhanced internalization and degradation of CD28. These data suggest that apart from the established competition for B7.1 and B7.2 by CTLA-4, inhibition of T cells by CTLA-4 might be additionally explained by reduction of CD28 on the cell surface, which might impede T cell response to stimulation. Our data provide a previously unrecognized mechanism for T cell regulation.