Glucocorticoids (GCs) are important steroid hormones with widespread activities in metabolism, development, and immune regulation. The adrenal glands are the major source of GCs and release these hormones in response to psychological and immunological stress. However, there is increasing evidence that GCs may also be synthesized by nonadrenal tissues. Here, we report that the intestinal mucosa expresses steroidogenic enzymes and releases the GC corticosterone in response to T cell activation. T cell activation causes an increase in the intestinal expression of the steroidogenic enzymes required for GC synthesis. In situ hybridization analysis revealed that these enzymes are confined to the crypt region of the intestinal epithelial layer. Surprisingly, in situ–produced GCs exhibit both an inhibitory and a costimulatory role on intestinal T cell activation. In the absence of intestinal GCs in vivo, activation by anti-CD3 injection resulted in reduced CD69 expression and interferon-γ production by intestinal T cells, whereas activation by viral infection led to increased T cell activation. We conclude that the intestinal mucosa is a potent source of immunoregulatory GCs.