Pigment epithelial (PE) cells cultured from the eye possess the novel property of suppressing TCR-dependent activation of T cells in vitro. Iris PE (IPE) cells accomplish this suppression by a direct cell contact mechanism in which B7-2 expressed by the PE cells interacts with CTLA-4 on responding T cells. Because CTLA-4 expression is constitutively expressed on a very small proportion of naive splenic T cells and since exposure of splenic T cells to IPE leads to global T cell suppression, we have inquired into the mechanism by which suppression is achieved. Using splenic T cells and IPE from donor mice with disrupted genes for CD80 (B7-1), CD86 (B7-2), CTLA-4, and/or CD28, we report that B7-2(+) IPE in the presence of anti-CD3 supported selectively the activation of CTLA-4(+) CD8(+) T cells that express their own B7-2 and secrete enhanced amounts of active TGFbeta. By contrast, activation of CTLA-4-negative T cells, especially CD4(+) cells, in these cultures was profoundly suppressed. Because global suppression of T cell activation in these cultures was obtained only when both IPE and T cells possessed B7-2 genes and expressed the costimulators as surface molecules, we propose that T cells activated in the presence of parenchymal cells from the eye (an immune privileged site) express B7-2 in a manner that equips them to suppress bystander T cells. Thus, B7-2 expression on T cells participates in their eventual ability to function as regulators in vitro.