Effector Th1 cells perpetuate inflammatory damage in a number of autoimmune diseases, including MS and its animal model EAE. Recently, a self-regulatory mechanism was described in which effector Th1 cells produce the immunomodulatory cytokine IL-10 to dampen the inflammatory response in both normal and autoimmune inflammation. While the presence of TGF-β has been suggested to enhance and stabilize an IFN-γ+IL-10+ phenotype, the molecular mechanism is poorly understood. Additionally, in the context of adoptive transfer EAE, it is unclear whether IL-10 acts on the transferred Th1 cells or on endogenous host cells. In the present study, using myelin-specific TCR-Tg mice, we show that repetitive Ag stimulation of effector Th1 cells in the presence of TGF-β increases the population of IFN-γ+IL-10+ cells, which correlates with a decrease in EAE severity. Additionally, TGF-β signaling causes binding of Smad4 to the IL-10 promoter, providing molecular evidence for TGF-β-mediated IL-10 production from Th1 effector cells. Finally, this study demonstrates that IL-10 not only reduces encephalitogenic markers such as IFN-γ and T-bet on Th1 effector cells expressing the IL-10R but also prevents recruitment of both transferred and host-derived inflammatory T cells. These data establish a regulatory mechanism by which highly activated Th1 effector cells modulate their pathogenicity through the induction of IL-10.