CD4⁺ T cell differentiation into multiple T helper (Th) cell lineages is critical for optimal adaptive immune responses. This report identifies an intrinsic mechanism by which programmed death-1 receptor (PD-1) signaling imparted regulatory phenotype to Foxp3⁺ Th1 cells (denoted as Tbet⁺iTreg_PDL1 cells) and inducible regulatory T (iTreg) cells. Tbet⁺iTreg_PDL1 cells prevented inflammation in murine models of experimental colitis and experimental graft versus host disease (GvHD). Programmed death ligand-1 (PDL-1) binding to PD-1 imparted regulatory function to Tbet⁺iTreg_PDL1 cells and iTreg cells by specifically downregulating endo-lysosomal protease asparaginyl endopeptidase (AEP). AEP regulated Foxp3 stability and blocking AEP imparted regulatory function in Tbet⁺iTreg cells. Also, Aep^−/− iTreg cells significantly inhibited GvHD and maintained Foxp3 expression. PD-1-mediated Foxp3 maintenance in Tbet⁺ Th1 cells occurred both in tumor infiltrating lymphocytes (TILs) and during chronic viral infection. Collectively, this report has identified an intrinsic function for PD-1 in maintaining Foxp3 through proteolytic pathway.