Ocular pigment epithelia contribute to immune privilege by suppressing T cell activation and converting T cells into regulatory T regulatory cells (Tregs) that inhibit bystander T cell activation. Iris pigment epithelium (IPE) does so through direct cell-cell contact with naive T cells, and this suppressive contact is via interactions between B7 expressed constitutively on IPE cells and CTLA-4 expressed on a subpopulation of CD8+ T cells. We have now examined whether TGFbeta is required in this process. We report that IPE produces both soluble and membrane-bound active TGFbeta, but that only the latter is actually delivered to CD8+ T cells. In turn, these T cells become IPE Tregs by up-regulating their own expression of B7-1/B7-2 and soluble and membrane-bound TGFbeta. IPE Tregs through their expression of B7 are able to engage CTLA-4+ bystander T cells, and thus precisely, target delivery of membrane-bound TGFbeta. We propose that this mechanism of suppression via TGFbeta ensures that soluble active TGFbeta is not released into the ocular microenvironment where it can have unregulated and deleterious effects, including elevation of intraocular pressure and development of glaucoma.