We reported earlier that patients with breast or pancreas cancer have an increased prevalence of regulatory T cells (Treg) in the blood and tumor draining lymph nodes (TDLNs) compared with healthy individuals. In the current study, we tested the hypothesis that tumor cells promote the prevalence of Treg. The transforming growth factor-beta (TGF-beta) secreting murine pancreas adenocarcinoma, Pan02 cell line was injected into syngeneic C57BL/6 mice and the prevalence of Treg in the TDLNs and tumor spleen was measured weekly. Compared with control mice, the prevalence of CD25+ CD4+ cells in TDLNs and in tumor spleen increased with tumor growth. Analysis of these CD25+ CD4+ T cells in vitro confirmed expression of the Treg marker, Foxp3. In addition, their functional activity resembled that of Treg, as evidenced by a poor proliferative capacity; suppression of proliferation of CD25- CD4 or CD8T cells and inhibition of interferon-gamma release by CD25- CD4+ T cells. Reconstitution of Pan02-bearing Rag-/- mice with naive syngeneic CD25- CD4+ T cells induced CD25+ CD4+ Foxp3+ T cells in TDLNs, but not in the spleen. In contrast, Foxp3 was not detected in unreconstituted Pan02-bearing Rag-/- mice, or reconstituted mice bearing a TGF-beta-negative esophageal tumor. Furthermore, administration of neutralizing anti-TGF-beta antibody blocked the induction of Foxp3 in reconstituted Pan02-bearing Rag-/- mice. These results mimic earlier in vitro studies showing induction of Foxp3 through CD3 plus CD28 stimulation in the presence of TGF-beta. We conclude that Pan02 tumor promotes the prevalence of Treg, in part through the secretion of TGF-beta, which may result in immune evasion.