CTLA-4 proteins contribute to the suppressor function of regulatory T cells (Tregs), but the mechanism by which they do so remains incompletely understood. In the present study, we assessed CTLA-4 protein function in both Tregs and conventional (Tconv) CD4(+) T cells. We report that CTLA-4 proteins are responsible for all 3 characteristic Treg functions of suppression, TCR hyposignaling, and anergy. However, Treg suppression and anergy only required the external domain of CTLA-4, whereas TCR hyposignaling required its internal domain. Surprisingly, TCR hyposignaling was neither required for Treg suppression nor anergy because costimulatory blockade by the external domain of CTLA-4 was sufficient for both functions. We also report that CTLA-4 proteins were localized in Tregs in submembrane vesicles that rapidly recycled to/from the cell surface, whereas CTLA-4 proteins in naive Tconv cells were retained in Golgi vesicles away from the cell membrane and had no effect on Tconv cell function. However, TCR signaling of Tconv cells released CTLA-4 proteins from Golgi retention and caused activated Tconv cells to acquire suppressor function. Therefore, the results of this study demonstrate the importance of intracellular localization for CTLA-4 protein function and reveal that CTLA-4 protein externalization imparts suppressor function to both regulatory and conventional CD4(+) T cells.