Unlike other helper T cells, the costimulatory ligands responsible for T regulatory type 1 (Tr1) cell differentiation remain undefined. Understanding the molecular interactions driving peripheral Tr1 differentiation is important because Tr1s potently regulate immune responses by IL-10 production. In this study, we show that costimulation of human naive CD4(+) cells through CD97/CD55 interaction drives Tr1 activation, expansion, and function. T cell activation and expansion was equipotent with CD55 or CD28 costimulation; however, CD55 costimulation resulted in two IL-10-secreting populations. Most IL-10 was secreted by the minor Tr1 population (IL-10(high)IFN-γ(-)IL-4(-), <5% cells) that expresses Tr1 markers CD49b, LAG-3, and CD226. This Tr1 phenotype was not restimulated by CD28. However, on CD55 restimulation, Tr1s proliferated and maintained their differentiated IL-10(high) phenotype. The Tr1s significantly suppressed effector T cell function in an IL-10-dependent manner. The remaining (>95%) cells adopted a Th1-like IFN-γ(+) phenotype. However, in contrast to CD28-derived Th1s, CD55-derived Th1s demonstrated increased plasticity with the ability to coexpress IL-10 when restimulated through CD55 or CD28. These data identify CD55 as a novel costimulator of human Tr1s and support a role for alternative costimulatory pathways in determining the fate of the growing number of T helper populations. This study demonstrates that CD55 acts as a potent costimulator and activator of human naive CD4(+) cells, resulting in the differentiation of a discrete Tr1 population that inhibits T cell function in an IL-10-dependent manner and maintains the Tr1 phenotype upon restimulation.