Regulatory T (T(reg)) cells play a key role in the maintenance of the immune system homeostasis. T(reg) cells can be generated in the periphery under control of TGF-beta, a cytokine involved in the negative control of the immune system. However, TGF-beta cooperates with IL-6 in the generation of Th17 cells, a novel class of effector cells involved in numerous inflammatory diseases, including colitis. Therefore, TGF-beta emerges as a mediator of both anti-inflammatory and pro-inflammatory processes, depending on the local cytokine milieu. Here we demonstrate that IL-21, a type-1 cytokine produced by T cells and involved in the pathogenesis of immune-mediated diseases, prevents the TGF-beta-dependent expression of FoxP3, the master regulator of T(reg) cell commitment, and the induction of suppressive capacity in naive CD4(+) T cells, while promoting the differentiation of Th17 cells. In vivo, CD4(+) naive T cells activated in the presence of TGF-beta and IL-21 failed to suppress colitis while inducing an inflammatory response characterized by high levels of IL-17 and RORgammat, the transcription factor expressed by Th17 cells. Therefore, IL-21 emerges as a key modulator of TGF-beta signaling, leading to the reciprocal differentiation of T(reg) and Th17 cells.