Cross-linking of ligand-engaged cytotoxic T lymphocyte antigen-4 (CTLA-4) to the T cell receptor (TCR) during the early phase of T cell activation attenuates TCR signaling, leading to T cell inhibition. To promote this event, a bispecific fusion protein comprising a mutant mouse CD80 (CD80w88a) and lymphocyte activation antigen-3 was engineered to concurrently engage CTLA-4 and cross-link it to the TCR. Cross-linking is expected to be attained via ligation of CTLA-4 first to MHCII and then indirectly to the TCR, generating a CTLA-4-MHCII-TCR trimolecular complex that forms between T cells and antigen-presenting cells during T cell activation. Treating T cells with this bispecific fusion protein inhibited T cell activation. In addition, it induced the production of IL-10 and TGF-β and attenuated AKT and mTOR signaling. Intriguingly, treatment with the bispecific fusion protein also directed early T cell differentiation into Foxp3-positive regulatory T cells (Tregs). This process was dependent on the endogenous production of TGF-β. Thus, bispecific fusion proteins that engage CTLA-4 and co-ligate it to the TCR during the early phase of T cell activation can negatively regulate the T cell response. Bispecific biologics with such dual functions may therefore represent a novel class of therapeutics for immune modulation. These findings presented here also reveal a potential new role for CTLA-4 in Treg differentiation.