Regulatory T cells (Tregs) have been shown to enhance immune reconstitution and prevent graft-versus-host disease (GVHD) after hematopoietic stem cell transplantation; however, it is unclear how Tregs mediate these effects. Here, we developed a model to examine the mechanism of Treg-dependent regulation of immune reconstitution. Lymphopenic mice were selectively reconstituted with Tregs prior to transfer of conventional CD4+ T cells. Full Treg reconstitution prevented the rapid oligoclonal proliferation that gives rise to pathogenic CD4 effector T cells, while preserving the slow homeostatic form of lymphopenia-induced peripheral expansion that repopulates a diverse peripheral T cell pool. Treg-mediated CTLA-4-dependent downregulation of CD80/CD86 on DCs was critical for inhibition of rapid proliferation and was a function of the Treg/DC ratio achieved by reconstitution. In an allogeneic BM transplant model, selective Treg reconstitution before T cell transfer also normalized DC costimulation and provided complete protection against GVHD. In contrast, cotransfer of Tregs was not protective. Our results indicate that achieving optimal recovery from lymphopenia should aim to improve early Treg reconstitution in order to increase the relative number of Tregs to DCs and thereby inhibit spontaneous oligoclonal T cell proliferation.