CD28 and CTLA-4, T cell receptors for B7-1 (CD80) and B7-2 (CD86) molecules on antigen-presenting cells, transmit costimulatory signals important for optimal T cell activation. Despite sharing sequence homology and common ligands, these receptors have distinct binding properties and patterns of expression. The function of CTLA-4 during T cell activation is not well understood, although an important role is suggested by complete amino acid sequence conservation of its cytoplasmic tail in all species studied to date. We report here a role of the cytoplasmic tail of CTLA-4 in regulating its subcellular localization and cell surface expression. In activated human peripheral blood T cells, or in several transfected or transduced cell types, CTLA-4 is not primarily a cell surface protein, but rather is localized intracellularly in a region which overlaps the Golgi apparatus. Transfer of 11 cytoplasmic residues, 161TTGVYVKMPPT, from the CTLA-4 cytoplasmic tail to the homologous position in CD28 was sufficient to confer intracellular localization. Mutation of the tyrosine residue (Tyr165) in this motif to phenylalanine resulted in increased surface expression of CTLA-4. Thus, the subcellular localization of CTLA-4 is controlled by a tyrosine-containing motif within its cytoplasmic domain. Contained within this motif is a binding site for SH2 domains of the p85 subunit of phosphatidylinositol 3-kinase.