Modified anti-CD3 mAbs are emerging as a possible means of inducing immunologic tolerance in settings including transplantation and autoimmunity such as in type 1 diabetes. In a trial of a modified anti-CD3 mAb [hOKT3γ1(Ala-Ala)] in patients with type 1 diabetes, we identified clinical responders by an increase in the number of peripheral blood CD8⁺ cells following treatment with the mAb. Here we show that the anti-CD3 mAb caused activation of CD8⁺ T cells that was similar in vitro and in vivo and induced regulatory CD8⁺CD25⁺ T cells. These cells inhibited the responses of CD4⁺ cells to the mAb itself and to antigen. The regulatory CD8⁺CD25⁺ cells were CTLA4⁺ and Foxp3⁺ and required contact for inhibition. Foxp3 was also induced on CD8⁺ T cells in patients during mAb treatment, which suggests a potential mechanism of the anti-CD3 mAb immune modulatory effects involving induction of a subset of regulatory CD8⁺ T cells.