The balance of effector versus regulatory T cells (Tregs) controls inflammation in numerous settings, including multiple sclerosis (MS). Here we show that memory phenotype CD4 ⁺ T cells infiltrating the central nervous system during experimental autoimmune encephalomyelitis (EAE), a widely studied animal model of MS, expressed high levels of mRNA for Dgat1 encoding diacylglycerol-O-acyltransferase-1 (DGAT1), an enzyme that catalyzes triglyceride synthesis and retinyl ester formation. DGAT1 inhibition or deficiency attenuated EAE, with associated enhanced Treg frequency; and encephalitogenic, DGAT1 ^−/− in vitro-polarized Th17 cells were poor inducers of EAE in adoptive recipients. DGAT1 acyltransferase activity sequesters retinol in ester form, preventing synthesis of retinoic acid, a cofactor for Treg generation. In cultures with T cell-depleted lymphoid tissues, retinol enhanced Treg induction from DGAT1 ^−/− but not from WT T cells. The WT Treg induction defect was reversed by DGAT1 inhibition. These results demonstrate that DGAT1 suppresses retinol-dependent Treg formation and suggest its potential as a therapeutic target for autoimmune inflammation.