Naturally occurring CD4+CD25+ regulatory T cells (Treg) exert an important role in mediating maternal tolerance to the fetus during pregnancy, and this effect might be regulated via maternal estrogen secretion. Although estrogen concentration in the pharmaceutical range has been shown to drive expansion of CD4+CD25+ Treg cells, little is known about how and through what mechanisms E2 within the physiological concentration range of pregnancy affects this expansion. Using in vivo and in vitro mouse models in these experiments, we observed that E2 at physiological doses not only expanded Treg cell in different tissues but also increased expression of the Foxp3 gene, a hallmark for CD4+CD25+ Treg cell function, and the IL-10 gene as well. Importantly, our results demonstrate that E2, at physiological doses, stimulated the conversion of CD4+CD25− T cells into CD4+CD25+ T cells which exhibited enhanced Foxp3 and IL-10 expression in vitro. Such converted CD4+CD25+ T cells had similar regulatory function as naturally occurring Treg cells, as demonstrated by their ability to suppress naïve T cell proliferation in a mixed lymphocyte reaction. We also found that the estrogen receptor (ER) exist in the CD4+CD25− T cells and the conversion of CD4+CD25− T cells into CD4+CD25+ T cells stimulated by E2 could be inhibited by ICI182,780, a specific inhibitor of ER(s). This supports that E2 may directly act on CD4+CD25− T cells via ER(s). We conclude that E2 is a potential physiological regulatory factor for the peripheral development of CD4+CD25+ Treg cells during the implantation period in mice. J. Cell. Physiol. 214: 456–464, 2008. © 2007 Wiley-Liss, Inc.