The significance of cytokine production by CD4(+) regulatory T (T reg) cells after antigen exposure in vivo and its impact on their regulatory activity remains unclear. Pretreatment with donor alloantigen under the cover of anti-CD4 therapy generates alloantigen reactive T reg cells that can prevent rejection of donor-specific skin grafts that are mediated by naive CD45RB(high)CD4(+) T cells. To examine the kinetics and importance of cytokine gene transcription by such alloantigen-reactive T reg cells, pretreated mice were rechallenged with donor alloantigen in vivo. CD25(+)CD4(+) T cells, but not CD25(-)CD4(+) T cells, showed a fivefold increase in IFN-gamma mRNA expression within 24 h of re-encountering alloantigen in vivo. This expression kinetic was highly antigen-specific and was of functional significance. Neutralizing IFN-gamma at the time of cotransfer of alloantigen reactive T reg cells, together with CD45RB(high)CD4(+) effector T cells into Rag(-/-) skin graft recipients, resulted in skin graft necrosis in all recipients; the generation and function of alloantigen-reactive T reg cells was impaired dramatically in IFN-gamma-deficient mice. These data support a unique role for IFN-gamma in the functional activity of alloantigen-reactive T reg cells during the development of operational tolerance to donor alloantigens in vivo.