Recent studies have demonstrated that in peripheral lymphoid tissues of normal mice and healthy humans, 1% to 5% of alpha beta T-cell receptor-positive (TCR+) T cells are CD4(-)CD8(-) (double-negative [DN]) T cells, capable of down-regulating immune responses. However, the origin and developmental pathway of DN T cells is still not clear. In this study, by monitoring CD4 expression during T-cell proliferation and differentiation, we identified a new differentiation pathway for the conversion of CD4(+) T cells to DN regulatory T cells. We showed that the converted DN T cells retained a stable phenotype after restimulation and that furthermore, the disappearance of cell-surface CD4 molecules on converted DN T cells was a result of CD4 gene silencing. The converted DN T cells were resistant to activation-induced cell death (AlCID) and expressed a unique set of cell-surface markers and gene profiles. These cells were highly potent in suppressing alloimmune responses both in vitro and in vivo in an antigen-specific manner. Perforin was highly expressed by the converted DN regulatory T cells and played a role in DN T-cell-mediated suppression. Our findings thus identify a new differentiation pathway for DN regulatory T cells and uncover a new intrinsic homeostatic mechanism that regulates the magnitude of immune responses. This pathway provides a novel, cell-based, therapeutic approach for preventing allograft rejection.