The aryl hydrocarbon receptor (AhR) is a ligand-activated transcription factor that plays multiple roles in regulation of immune and inflammatory responses. The ability of certain AhR ligands to induce regulatory T cells (Tregs) has generated interest in developing AhR ligands for therapeutic treatment of immune-mediated diseases. To this end, we designed a screen for novel Treg-inducing compounds based on our understanding of the mechanisms of Treg induction by the well-characterized immunosuppressive AhR ligand, 2,3,7,8-tetrachlorodibenzo-p-dioxin (TCDD). We screened a ChemBridge small molecule library and identified 10-chloro-7H-benzimidazo[2,1-a]benzo[de]Iso-quinolin-7-one (10-Cl-BBQ) as a potent AhR ligand that was rapidly metabolized and not cytotoxic to proliferating T cells. Like TCDD,10-Cl-BBQ altered donor CD4(+) T cell differentiation during the early stages of a graft versus host (GVH) response resulting in expression of high levels of CD25, CTLA-4 and ICOS, as well as several genes associated with Treg function. The Treg phenotype required AhR expression in the donor CD4(+) T cells. Foxp3 was not expressed in the AhR-induced Tregs implicating AhR as an independent transcription factor for Treg induction. Structure-activity studies showed that unsubstituted BBQ as well as 4, 11-dichloro-BBQ were capable of inducing AhR-Tregs. Other substitutions reduced activation of AhR. Daily treatment with 10-Cl-BBQ during the GVH response prevented development of GVH disease in an AhR-dependent manner with no overt toxicity. Together, our data provide strong support for development of select BBQs that activate the AhR to induce Tregs for treatment of immune-mediated diseases.