CD4(+)Foxp3(+) regulatory T cells (Tregs) play a central role in the maintenance of immune tolerance after allogeneic hematopoietic stem cell transplantation. We recently reported that daily administration of low-dose interleukin-2 (IL-2) induces selective expansion of functional Tregs and clinical improvement of chronic graft-versus-host disease (GVHD). To define the mechanisms of action of IL-2 therapy, we examined the immunologic effects of this treatment on homeostasis of CD4(+) T cell subsets after transplant. We first demonstrated that chronic GVHD is characterized by constitutive phosphorylation of signal transducer and activator of transcription 5 (Stat5) in conventional CD4(+) T cells (Tcons) associated with elevated amounts of IL-7 and IL-15 and relative functional deficiency of IL-2. IL-2 therapy resulted in the selective increase of Stat5 phosphorylation in Tregs and a decrease of phosphorylated Stat5 in Tcons. Over an 8-week period, IL-2 therapy induced a series of changes in Treg homeostasis, including increased proliferation, increased thymic export, and enhanced resistance to apoptosis. Low-dose IL-2 had minimal effects on Tcons. These findings define the mechanisms whereby low-dose IL-2 therapy restores the homeostasis of CD4(+) T cell subsets and promotes the reestablishment of immune tolerance.