The role of Treg in patients with late-stage HIV disease, who commence combination antiretroviral therapy (cART) and develop pathogen-specific immunopathology manifesting as immune restoration disease (IRD) remains unclear. We hypothesised that Treg could be defective in either numbers and/or function and therefore unable to ensure the physiological equilibrium of the immune system in patients with IRD. Phenotypic and functional CD4(+) T-cell subsets of eight late-stage HIV patients with nadir CD4 count <50 cells/microL, who developed mycobacterial IRD upon commencing cART were compared with six therapy naive HIV(+) patients (nadir CD4 count <50 cells/microL), who did not develop an IRD after cART. Mycobacterium-avium-specific CD4(+) T cells from IRD patients produced high levels of IFN-gamma and IL-2 compared with controls (p<0.001). Surprisingly, we found a significant expansion of CD127(lo)Foxp3(+)CD25(+) Treg in IRD patients and a higher ratio of Treg to effector/memory subsets (p<0.001). In vitro suppression assays demonstrated reduced functional capacity of suppressor cells and diminished IL-10 secretion in IRD patients. Plasma levels of IL-7 were increased in patients and, interestingly, exogenous IL-7 and other cytokines strongly inhibited Treg suppression. These data suggest that despite substantial Treg expansion in IRD, their ability to induce suppression, and thereby downregulate aberrant immune responses, is compromised.