IL-10–producing B cells, also known as regulatory B cells (Bregs), play a key role in controlling autoimmunity. In this study, we report that chimeric mice specifically lacking IL-10–producing B cells (IL-10−/− B cell) developed an exacerbated arthritis compared with chimeric wild-type (WT) B cell mice. A significant decrease in the absolute numbers of Foxp3 regulatory T cells (Tregs), in their expression level of Foxp3, and a marked increase in inflammatory Th1 and Th17 cells were detected in IL-10−/− B cell mice compared with WT B cell mice. Reconstitution of arthritic B cell deficient (μMT) mice with different B cell subsets revealed that the ability to modulate Treg frequencies in vivo is exclusively restricted to transitional 2 marginal zone precursor Bregs. Moreover, transfer of WT transitional 2 marginal zone precursor Bregs to arthritic IL-10−/− mice increased Foxp3+ Tregs and reduced Th1 and Th17 cell frequencies to levels measured in arthritic WT mice and inhibited inflammation. In vitro, IL-10+/+ B cells established longer contact times with arthritogenic CD4+ CD25− T cells compared with IL-10−/− B cells in response to Ag stimulation, and using the same culture conditions, we observed upregulation of Foxp3 on CD4+ T cells. Thus, IL-10–producing B cells restrain inflammation by promoting differentiation of immunoregulatory over proinflammatory T cells.