Regulatory T (Treg) cells are essential for self-tolerance and immune homeostasis. Transcription factor Foxp3, a positive regulator of Treg cell differentiation, has been studied to some extent. Signal transducer and activator of transcription factor 3 (STAT3) is known to negatively regulate Foxp3. It is not clear how STAT3 is regulated during Treg differentiation. We show that SMAR1, a known transcription factor and tumor suppressor, is directly involved in maintaining Treg cell fate decision. T-cell-specific conditional knockdown of SMAR1 exhibits increased susceptibility towards inflammatory disorders, such as colitis. The suppressive function of Treg cells is compromised in the absence of SMAR1 leading to increased T helper type 17 (Th17) differentiation and inflammation. Compared with wild-type, the SMAR1(-/-) Treg cells showed increased susceptibility of inflammatory bowel disease in Rag1(-/ -) mice, indicating the role of SMAR1 in compromising Treg cell differentiation resulting in severe colitis. We show that SMAR1 negatively regulate STAT3 expression favoring Foxp3 expression and Treg cell differentiation. SMAR1 binds to the MAR element of STAT3 promoter, present adjacent to interleukin-6 response elements. Thus Foxp3, a major driver of Treg cell differentiation, is regulated by SMAR1 via STAT3 and a fine-tune balance between Treg and Th17 phenotype is maintained.