OBJECTIVE: CTLA4 gene variation associates with multiple autoimmune disorders, including type 1 diabetes. The CTLA4 susceptibility allele was found to generate decreased levels of mRNA encoding soluble CTLA-4 (sCTLA-4) relative to the full-length isoform, the functional consequence of which is as yet unknown. In this study, we investigated the contribution of sCTLA-4 to immune regulation with the aim to elucidate the functional basis of the disease association of CTLA4. RESEARCH DESIGN AND METHODS: To model the disease-associated splicing variation of CTLA4, we generated NOD mice in which sCTLA-4 mRNA is silenced by RNA interference. RESULTS: We found that loss of sCTLA-4 impairs the function of regulatory T (Treg) cells. This functional defect could be attributed, at least in part, to the failure of sCTLA-4 knockdown (KD) Treg cells to downregulate dendritic cell costimulation. sCTLA-4 KD Treg cells, in contrast with wild-type Treg cells, failed to inhibit colitis induced by transfer of CD4(+)CD45RB(hi) cells into NOD.SCID animals. Furthermore, diminished sCTLA-4 expression accelerated the onset of autoimmune diabetes in transgenic mice. CONCLUSIONS: Our results demonstrate that sCTLA-4 participates in immune regulation by potentiating the function of Treg cells. The functional outcome of silencing this splice variant in the NOD model provides an explanation for the association of CTLA4 variation with autoimmunity. Lower sCTLA-4 expression from the susceptibility allele may directly affect the suppressive capacity of Treg cells and thereby modulate disease risk. Our unprecedented approach establishes the feasibility of modeling splicing variations relevant to autoimmunity.