Regulation by transforming growth factor (TGF)-β plays an important role in immune homeostasis. TGF-β inhibits T cell functions by blocking both proliferation and differentiation. Here we show that TGF-β blocks Th1 differentiation by inhibiting the expression of T-bet, the apparent masterregulator of T helper (Th)1 differentiation. Restoration of T-bet expression through retroviral transduction of T-bet into developing Th1 cells abrogated the inhibitory effect of TGF-β. In addition, we show that, contrary to prior suggestions, downregulation of interleukin 12 receptor β2 chain is not key to the TGF-β–mediated effect. Furthermore, we show that the direct inhibitory effect of TGF-β on T cells is responsible, at least in part, for the inability of BALB/c mice to mount a Leishmania-specific Th1 response and to clear Leishmanial infection.