Appropriate development of regulatory T (Treg) cells is necessary to prevent autoimmunity. Neonatal mice, unlike adults, lack factors required for Treg cell development. It is unclear what these missing factors are. However, signals emanating from the T cell receptor (TCR), the costimulatory receptor CD28, and the family of gammac-dependent cytokine receptors are required for Treg cell development. Herein we demonstrate that expression of a constitutively active Stat5b transgene (Stat5b-CA) allowed for Treg cell development in neonatal mice and restored Treg cell numbers in Cd28(-/-) mice. Sequence analysis of TCR genes in Stat5b-CA Treg cells indicated that ectopic STAT5 activation resulted in a TCR repertoire that more closely resembled that of naive T cells. Using MHCII tetramers to identify antigen-specific T cells, we showed that STAT5 signals diverted thymocytes normally destined to become naive T cells into the Treg cell lineage. Our data support a two-step model of Treg cell differentiation in which TCR and CD28 signals induce cytokine responsiveness and STAT5-inducing cytokines then complete the program of Treg cell differentiation.