CD4+ CD25+ regulatory T cells (Tregs) are essential for maintaining self-tolerance and immune homeostasis. Here we characterize a novel subset of CD4+ CD25+ Tregs that express latency-associated peptide (LAP) on their cell surface (CD4+ CD25+ LAP+ cells). CD4+ CD25+ LAP+ cells express elevated levels of Foxp3 and Treg-associated molecules (CTLA4, glucocorticoid-induced TNFR-related gene), secrete TGFβ, and express both cell surface TGFβ and surface receptors for TGFβ. In vitro, the suppressive function of CD4+ CD25+ LAP+ cells is both cell contact and soluble factor dependent; this contrasts with CD4+ CD25+ LAP− cells, which are mainly cell contact dependent. In a model of experimental autoimmune encephalomyelitis, CD4+ CD25+ LAP+ cells exhibit more potent suppressive activity than CD4+ CD25+ LAP− cells, and the suppression is TGFβ dependent. We further show that CD4+ CD25+ LAP+ cells suppress myelin oligodendrocyte glycoprotein-specific immune responses by inducing Foxp3 and by inhibiting IL-17 production. Our findings demonstrate that CD4+ CD25+ Tregs are a heterogeneous population and that the CD4+ CD25+ subset that expresses LAP functions in a TGFβ-dependent manner and has greater in vivo suppressive properties. Our work helps elucidate the ambiguity concerning the role of TGFβ in CD4+ CD25+ Treg-mediated suppression and indicates that LAP is an authentic marker able to identify a TGFβ-expressing CD4+ CD25+ Treg subset.