Regulatory T (Treg) cells suppress autoimmune disease, and impaired Treg cell function is associated with rheumatoid arthritis. Here we demonstrate that forkhead box P3 (FOXP3) transcriptional activity and, consequently, Treg cell suppressive function are regulated by phosphorylation at Ser418 in the C-terminal DNA-binding domain. In rheumatoid arthritis-derived Treg cells, the Ser418 site was specifically dephosphorylated by protein phosphatase 1 (PP1), whose expression and enzymatic activity were induced in the inflamed synovium by tumor necrosis factor α (TNF-α), leading to impaired Treg cell function. Moreover, TNF-α-induced Treg cell dysfunction correlated with increased numbers of interleukin-17 (IL-17)(+) and interferon-γ (IFN-γ)(+)CD4(+) T cells within the inflamed synovium in rheumatoid arthritis. Treatment with a TNF-α-specific antibody restored Treg cell function in subjects with rheumatoid arthritis, which was associated with decreased PP1 expression and increased FOXP3 phosphorylation in Treg cells. Thus, TNF-α controls the balance between Treg cells and pathogenic TH17 and TH1 cells in the synovium of individuals with rheumatoid arthritis through FOXP3 dephosphorylation.