Fingolimod (FTY720) is an immunomodulating drug that inhibits sphingosine-1-phosphate binding and blocks T-cell egress from lymph nodes. We analyzed the effect of FTY720 on the autoimmune T- and B-cell response in autoimmune arthritis and studied the mechanisms by which it alters the function of T cells. Human leukocyte antigen (HLA)-DR1 humanized mice were immunized with type II collagen (CII) and treated with FTY720 three times per week for 3 weeks. Arthritis was evaluated and autoimmune T- and B-cell responses were measured using proliferation assays, enzyme-linked immunosorbent assays, HLA-DR tetramers, and flow cytometry. The functional capacity of regulatory T (Treg) cells from FTY720-treated mice was measured using an in vitro suppression assay, and the role of Treg cells in inhibiting arthritis in FTY720-treated mice was evaluated using mice treated with anti-CD25 to deplete Treg cells. Treatment with FTY720 delayed the onset of arthritis and significantly reduced disease incidence. FTY720 did not prevent the generation of a CII-specific autoimmune T-cell response in vivo. However, as the treatment continued, these T cells became unresponsive to restimulation with antigen in vitro, and this anergic state was reversed by addition of interleukin 2. Measurements of CD4(+)CD25(+)Foxp3(+) cells in the lymph nodes revealed that the ratio of Treg to helper T (Th) cells increased twofold in the FTY720-treated mice, and in vitro assays indicated that the regulatory function of these cells was enhanced. That FTY720 stimulation of Treg cells played a major role in arthritis inhibition was demonstrated by a loss of disease inhibition and restitution of the T-cell proliferative function after in vivo depletion of the Treg cells. While FTY720 affects the recirculation of lymphocytes, its ability to inhibit the development of autoimmune arthritis involves several mechanisms, including the enhancement of Treg cell function by increasing the Treg/Th ratio and increased regulatory function on a per-cell basis. FTY720 did not inhibit the development of the autoimmune T-cell response, but disease inhibition appeared to be mediated by Treg cell-mediated suppression of the CII-specific T cells. These data suggest that specific targeting of Treg cells with FTY720 may be a novel therapy for autoimmunity.