Highly immunogenic cancers such as malignant melanoma are capable of inexorable tumor growth despite the presence of antitumor immunity. Thus, only a restricted minority of tumorigenic malignant cells may possess the phenotypic and functional characteristics needed to modulate tumor-directed immune activation. Here we provide evidence supporting this hypothesis. Tumorigenic ABCB5(+) malignant melanoma initiating cells (MMICs) possessed the capacity to preferentially inhibit IL-2-dependent T-cell activation and to support, in a B7.2-dependent manner, induction of CD4(+)CD25(+)FoxP3(+) regulatory T cells (Tregs). Compared with melanoma bulk cell populations, ABCB5(+) MMICs displayed lower levels of MHC class I, aberrant positivity for MHC class II, and lower expression levels of the melanoma-associated antigens MART-1, ML-IAP, NY-ESO-1, and MAGE-A. Additionally, these tumorigenic ABCB5(+) subpopulations preferentially expressed the costimulatory molecules B7.2 and PD-1, both in established melanoma xenografts and in clinical tumor specimens. In immune activation assays, MMICs inhibited mitogen-dependent human peripheral blood mononuclear cell (PBMC) proliferation and IL-2 production more efficiently than ABCB5(-) melanoma cell populations. Moreover, coculture with ABCB5(+) MMICs increased the abundance of Tregs, in a B7.2 signaling-dependent manner, along with IL-10 production by mitogen-activated PBMCs. Consistent with these findings, MMICs also preferentially inhibited IL-2 production and induced IL-10 secretion by cocultured patient-derived, syngeneic PBMCs. Our findings identify novel T-cell modulatory functions of ABCB5(+) melanoma subpopulations and suggest specific roles for these MMICs in the evasion of antitumor immunity and in cancer immunotherapeutic resistance.