Abstract The B7-like protein family members play critical immunomodulatory roles and constitute attractive targets for the development of novel therapies for human diseases. We identified Ig-like domain–containing receptor (ILDR)2 as a novel B7-like protein with robust T cell inhibitory activity, expressed in immune cells and in immune-privileged and inflamed tissues. A fusion protein, consisting of ILDR2 extracellular domain with an Fc fragment, that binds to a putative counterpart on activated T cells showed a beneficial effect in the collagen-induced arthritis model and abrogated the production of proinflammatory cytokines and chemokines in autologous synovial-like cocultures of macrophages and cytokine-stimulated T cells. Collectively, these findings point to ILDR2 as a novel negative regulator for T cells, with potential roles in the development of immune-related diseases, including autoimmunity and cancer.