Inducible co-stimulator (ICOS) is a member of CD28/Cytotoxic T-lymphocyte Antigen-4 (CTLA-4) family and broadly expressed in activated CD4⁺ T cells and induced regulatory CD4⁺ T cells (CD4⁺ iTreg). ICOS-related signal pathway could be activated by the interaction between ICOS and its ligand (ICOSL). In our previous work, we established a cost-effective system to generate a novel human allo-antigen specific CD4^hi Treg by co-culturing their naïve precursors with allogeneic CD40-activated B cells in vitro. Here we investigate the role of ICOS in the generation and function of CD4^hi Treg by interrupting ICOS-ICOSL interaction with ICOS-Ig. It is found that blockade of ICOS-ICOSL interaction impairs the induction and expansion of CD4^hi Treg induced by allogeneic CD40-activated B cells. More importantly, CD4^hi Treg induced with the addition of ICOS-Ig exhibits decreased suppressive capacity on alloantigen-specific responses. Dysfunction of CD4^hi Treg induced with ICOS-Ig is accompanied with its decreased exocytosis and surface CTLA-4 expression. Through inhibiting endocytosis with E64 and pepstatin A, surface CTLA-4 expression and suppressive functions of induced CD4^hi Treg could be partly reversed. Conclusively, our results demonstrate the beneficial role of ICOS-ICOSL signal pathway in the generation and function of CD4^hi Treg and uncover a novel relationship between ICOS and CTLA-4.