A key pathophysiologic role for activated T-cells in mediating adipose inflammation and insulin resistance (IR) has been recently postulated. However, mechanisms underlying their activation are poorly understood. In this study, we demonstrated a previously unrecognized homeostatic role for the costimulatory B7 molecules (CD80 and CD86) in preventing adipose inflammation. Instead of promoting inflammation, which was found in many other disease conditions, B7 costimulation reduced adipose inflammation by maintaining regulatory T-cell (Treg) numbers in adipose tissue. In both humans and mice, expression of CD80 and CD86 was negatively correlated with the degree of IR and adipose tissue macrophage infiltration. Decreased B7 expression in obesity appeared to directly impair Treg proliferation and function that lead to excessive proinflammatory macrophages and the development of IR. CD80/CD86 double knockout (B7 KO) mice had enhanced adipose macrophage inflammation and IR under both high-fat and normal diet conditions, accompanied by reduced Treg development and proliferation. Adoptive transfer of Tregs reversed IR and adipose inflammation in B7 KO mice. Our results suggest an essential role for B7 in maintaining Tregs and adipose homeostasis and may have important implications for therapies that target costimulation in type 2 diabetes.