To define the factors that modulate regulatory T (Treg) cells in the tumor setting, we cocultured various tumor cells with either purified Treg cells, or with unfractionated splenocytes. We found that Treg expansion occurred only with unfractionated splenocytes, suggesting that accessory cells and/or factors produced by them play an essential role in tumor-induced Treg expansion. We performed gene expression profiling on tumor-associated Treg cells to identify candidate signaling molecules and studied their effects on tumor-induced Treg expansion. We inadvertently discovered that interleukin (IL)-12 treatment blocked Treg expansion in an IL-12 receptor-dependent fashion. Additional studies showed that IL-12 acts by stimulating IFN-gamma mediated inhibition of Treg cell proliferation, which may partially account for the antitumor effects of IL-12. Furthermore, IL-12 treatment was found to decrease IL-2 production, which may lead to IFN-gamma-independent inhibition of Treg cells, as IL-2 is required for their survival and expansion. Mechanistic studies revealed that IFN-gamma signaling directly causes cell cycle arrest in Treg cells. This study shows that an IL-12-IFN-gamma axis can suppress tumor-induced Treg proliferation. This mechanism may counteract the ability of Treg cells to promote tumor growth in vivo.