Abstract Purpose: Regulatory T cells (Tregs) are potent tools to prevent graft-versus-host disease (GVHD) induced after allogeneic stem cell transplantation or donor lymphocyte infusions. Toward clinical application of Tregs for GVHD treatment, we investigated the impact of Tregs on the therapeutic graft-versus-tumor (GVT) effect against human multiple myeloma tumors with various immunogenicities, progression rates, and localizations in a humanized murine model. Experimental Design: Immunodeficient Rag2−/−γc−/− mice, bearing various human multiple myeloma tumors, were treated with human peripheral blood mononuclear cell (PBMC) alone or together with autologous ex vivo cultured Tregs. Mice were analyzed for the in vivo engraftment, homing of T-cell subsets, development of GVHD and GVT. In additional in vitro assays, Tregs that were cultured together with bone marrow stromal cells were analyzed for phenotype and functions. Results: Treatment with PBMC alone induced variable degrees of antitumor response, depending on the immunogenicity and the growth rate of the tumor. Coinfusion of Tregs did not impair the antitumor response against tumors residing within the bone marrow, irrespective of their immunogenicity or growth rates. In contrast, Tregs readily inhibited the antitumor effect against tumors growing outside the bone marrow. Exploring this remarkable phenomenon, we discovered that bone marrow stroma neutralizes the suppressive activity of Tregs in part via production of interleukin (IL)-1β/IL-6. We furthermore found in vitro and in vivo evidence of conversion of Tregs into IL-17–producing T cells in the bone marrow environment. Conclusions: These results provide new insights into the Treg immunobiology and indicate the conditional benefits of future Treg-based therapies. Clin Cancer Res; 19(6); 1467–75. ©2012 AACR.