Treg cells are critical for the prevention of autoimmune diseases and are thus prime candidates for cell-based clinical therapy. However, human Treg cells are “plastic”, and are able to produce IL-17 under inflammatory conditions. Here, we identify and characterize the human Treg subpopulation that can be induced to produce IL-17 and identify its mechanisms. We confirm that a subpopulation of human Treg cells produces IL-17 in vitro when activated in the presence of IL-1β, but not IL-6. “IL-17 potential” is restricted to population III (CD4+CD25hiCD127loCD45RA−) Treg cells expressing the natural killer cell marker CD161. We show that these cells are functionally as suppressive and have similar phenotypic/molecular characteristics to other subpopulations of Treg cells and retain their suppressive function following IL-17 induction. Importantly, we find that IL-17 production is STAT3 dependent, with Treg cells from patients with STAT3 mutations unable to make IL-17. Finally, we show that CD161+ population III Treg cells accumulate in inflamed joints of patients with inflammatory arthritis and are the predominant IL-17-producing Treg-cell population at these sites. As IL-17 production from this Treg-cell subpopulation is not accompanied by a loss of regulatory function, in the context of cell therapy, exclusion of these cells from the cell product may not be necessary.