B7-homolog 4 (B7-H4), a recently identified homolog of B7.1/2 (CD80/86), has been described to exert co-stimulatory and immune regulatory functions. We investigated the expression and the functional activity of B7-H4 in lung cancer in vitro and in vivo. Although a lung cancer cell line constitutively expressed B7-H4 mRNA and protein in plasma, primary tumor cell isolated from the transplanted lung carcinoma model expressed B7-H4 on the surface. Interestingly, in transplanted lung carcinoma model, the expression of membrane-bound B7-H4 in tumor cells was increased as prolonging of tumor transformation. Exposure to tumor-associated macrophages strongly induced membrane-bound B7-H4 expression on the lung cancer cell line. To elucidate the functional significance of lung cancer-related B7-H4 expression, we performed co-culture experiments of lung cancer cell with allo-reactive T cells. Lung cancer-related B7-H4 was identified as a strong inhibitor of T-cell effect. Furthermore, B7-H4 mAb had an ability to inhibit tumor growth in vivo. B7-H4 expression may thus significantly influence the outcome of T-cell tumor cell interactions and TAM induced membrane-bound B7-H4 on the lung cancer cell represents a novel mechanism by which lung cancer cells evade immune recognition and destruction.