CTLA-4 (CD152) engagement results in down-regulation of T cell activation. Two mechanisms have been postulated to explain CTLA-4 inhibition of T cell activation: negative signaling and competitive antagonism of CD28: B7-mediated costimulation. We assessed the contributions of these two mechanisms using a panel of T cell lines expressing human CTLA-4 with mutations in the cytoplasmic region. Under conditions of B7-independent costimulation, inhibition of IL-2 production following CTLA-4 engagement required the CTLA-4 cytoplasmic region. In contrast, under B7-dependent costimulation, inhibition of IL-2 production by CTLA-4 engagement was directly proportional to CTLA-4 cell surface levels and did not require its cytoplasmic region. Thus, CTLA-4 down-regulates T cell activation by two different mechanisms—delivery of a negative signal or B7 sequestration—that are operational depending on the levels of CTLA-4 surface expression. These two mechanisms may have distinct functional outcomes: rapid inhibition of T cell activation or induction of T cell anergy.