CTLA-4 (CD152) negatively regulates T cell activation signaling, and the cytoplasmic domain of CTLA-4 (ctCTLA-4) itself has the capacity to inhibit T cell activation in vitro and in vivo. In this study, the inhibitory mechanisms of the cell-permeable recombinant protein Hph-1-ctCTLA-4 on T cell activation and its ability to prevent collagen-induced arthritis were analyzed. Hph-1-ctCTLA-4 prevented human and mouse T cell activation and proliferation by inhibition of T cell receptor-proximal signaling and the arrest of the cell cycle. Furthermore, Hph-1-ctCTLA-4 protected human umbilical vein endothelial cells (HUVEC) from the human CTL allo-response. The incidence and severity of collagen-induced arthritis were significantly reduced and the erosion of cartilage and bone was effectively prevented by i.v. injection and transdermal administration of Hph-1-ctCTLA-4. Inflammatory cytokine production (IL-1beta, IL-6, TNF-alpha, IL-17A) and collagen-specific antibody levels were significantly reduced, and the numbers of activated T cells and infiltrating granulocytes were substantially decreased. These results demonstrate that systemic or transdermal application of a cell-permeable form of the cytoplasmic domain of CTLA-4 offers an effective therapeutic approach for autoimmune diseases such as rheumatoid arthritis.