Regulatory T cells (Tregs) have a reduced capacity to activate the PI3K/Akt pathway downstream of the TCR, and the resulting low activity of Akt is necessary for their development and function. The molecular basis for the failure of Tregs to activate Akt efficiently, however, remains unknown. We show that PH-domain leucine-rich-repeat protein phosphatase (PHLPP), which dephosphorylates Akt, is upregulated in Tregs, thus suppressing Akt activation. Tregs expressed higher levels of PHLPP than those of conventional T cells, and knockdown of PHLPP1 restored TCR-mediated activation of Akt in Tregs. Consistent with their high Akt activity, the suppressive capacity of Tregs from PHLPP1(-/-) mice was significantly reduced. Moreover, the development of induced Tregs was impaired in PHLPP1(-/-) mice. The increased level of Akt's negative regulator, PHLPP, provides a novel mechanism used by T cells to control the Akt pathway and the first evidence, to our knowledge, for a molecular mechanism underlying the functionally essential reduction of Akt activity in Tregs.