Foxp3+ T regulatory cells are required to prevent autoimmune disease, but also prevent clearance of some chronic infections. While natural T regulatory cells are produced in the thymus, TGF-beta1 signaling combined with T-cell receptor signaling induces the expression of Foxp3 in CD4+ T cells in the periphery. We found that ICAM-1-/- mice have fewer T regulatory cells in the periphery than WT controls, due to a role for ICAM-1 in induction of Foxp3 expression in response to TGF-beta1. Further investigation revealed a functional deficiency in the TGF-beta1-induced translocation of phosphorylated Smad3 from the cytoplasmic compartment to the nucleus in ICAM-1-deficient mice. This impairment in the TGF-beta1 signaling pathway is most likely responsible for the decrease in T regulatory cell induction in the absence of ICAM-1. We hypothesized that in the presence of an inflammatory response, reduced production of inducible T regulatory cells would be evident in ICAM-1-/- mice. Indeed, following Mycobacterium tuberculosis infection, ICAM-1-/- mice had a pronounced reduction in T regulatory cells in the lungs compared with control mice. Consequently, the effector T-cell response and inflammation were greater in the lungs of ICAM-1-/- mice, resulting in morbidity due to overwhelming pathology.