Copolymer-I (COP-I) has unique immune regulatory properties and is a treatment option for multiple sclerosis (MS). This study revealed that COP-I induced the conversion of peripheral CD4+CD25- to CD4+CD25+ regulatory T cells through the activation of transcription factor Foxp3. COP-I treatment led to a significant increase in Foxp3 expression in CD4+ T cells in MS patients whose Foxp3 expression was reduced at baseline. CD4+CD25+ T cell lines generated by COP-I expressed high levels of Foxp3 that correlated with an increased regulatory potential. Furthermore, we demonstrated that the induction of Foxp3 in CD4+ T cells by COP-I was mediated through its ability to produce IFN-gamma and, to a lesser degree, TGF-beta1, as shown by antibody blocking and direct cytokine induction of Foxp3 expression in T cells. It was evident that in vitro treatment and administration with COP-I significantly raised the level of Foxp3 expression in CD4+ T cells and promoted conversion of CD4+CD25+ regulatory T cells in wild-type B6 mice but not in IFN-gamma knockout mice. This study provides evidence for the role and mechanism of action of COP-I in the induction of CD4+CD25+ regulatory T cells in general and its relevance to the treatment of MS.