Engagement of the T cell receptor for antigen (TCR) induces formation of signaling complexes mediated through the transmembrane adaptor protein, the linker for activation of T cells (LAT). LAT plays an important role in T cell development, activation, and homeostasis. A knock-in mutation at Tyr136, which is the phospholipase C (PLC)-gamma1-binding site in LAT, leads to a severe autoimmune disease in mice. In this study, we show that CD4+CD25+ T reg cells that expressed Foxp3 transcription factor were nearly absent in both thymus and peripheral lymphoid organs of LAT(Y136F) mice. This defect was not a result of the autoimmune environment as LAT(Y136F) T reg cells also failed to develop in healthy LAT-/- mice that received mixed wild-type and LAT(Y136F) bone marrow cells. Moreover, adoptive transfer of normal CD4+CD25+ T reg cells protected neonatal LAT(Y136F) mice from developing this disease. These T reg cells effectively controlled expansion of CD4+ T cells in LAT(Y136F) mice likely via granzymes and/or TGF-beta-mediated suppression. Furthermore, ectopic expression of Foxp3 conferred a suppressive function in LAT(Y136F) T cells. Our data indicate that the LAT-PLC-gamma1 interaction plays a critical role in Foxp3 expression and the development of CD4+CD25+ T reg cells.