It has been recently demonstrated that regulatory CD4(+)CD25(+) CD45RO(+) T cells are present in the peripheral blood of healthy adults and exert regulatory function similar to their rodent counterparts. It remains difficult to understand how the small fraction of these T cells that regulate via direct cell-to-cell contact and not via secretion of immunosuppressive cytokines could mediate strong immune suppression. Here we show that human CD4(+)CD25(+) T cells induce long-lasting anergy and production of interleukin (IL)-10 in CD4(+)CD25(-) T cells. These anergized CD4(+)CD25(-) T cells then suppress proliferation of syngenic CD4(+) T cells via IL-10 but independent of direct cell contact, similar to the so-called type 1 regulatory T (Tr1) cells. This 'catalytic' function of CD4(+)CD25(+) T cells to induce Tr1-like cells helps to explain their central role for the maintenance of immune homeostasis.