The cytokine B cell activation factor of the TNF family (BAFF) is considered to perform a proinflammatory function. This paradigm is particularly true for B cell-dependent immune responses; however the exact role for BAFF in regulating T cell immunity is ill-defined. To directly assess the effect of BAFF upon T cells, we analyzed T cell-dependent immune responses in BAFF-transgenic (Tg) mice. We found that T cell responses in BAFF-Tg mice are profoundly compromised, as indicated by their acceptance of islet allografts and delayed skin graft rejection. However, purified BAFF-Tg effector T cells could reject islet allografts with a normal kinetic, suggesting that the altered response did not relate to a defect in T cell function per se. Rather, we found that BAFF-Tg mice harbored an increased number of peripheral CD4+ Foxp3+ T cells. A large proportion of the BAFF-expanded CD4+ CD25+ Foxp3+ regulatory T cells (Tregs) were CD62L low CD103 high and ICAM-1 high, a phenotype consistent with an ability to home to inflammatory sites and prevent T cell effector responses. Indeed, depletion of the endogenous BAFF-Tg Tregs allowed allograft rejection to proceed, demonstrating that the increased Tregs were responsible for preventing alloimmunity. The ability of BAFF to promote Treg expansion was not T cell intrinsic, as Tregs did not express high levels of BAFF receptor 3, nor did excessive BAFF trigger NF-κB2 processing in Tregs. In contrast, we found that BAFF engendered Treg expansion through an indirect, B cell-dependent mechanism. Thus, under certain conditions, BAFF can play a surprising anti-inflammatory role in T cell biology by promoting the expansion of Treg cells.