Human T-cell leukemia virus type 1 (HTLV-1) is the causal agent of a neoplastic disease of CD4⁺ T cells, adult T-cell leukemia (ATL), and inflammatory diseases including HTLV-1 associated myelopathy/tropical spastic paraparesis, dermatitis, and inflammatory lung diseases. ATL cells, which constitutively express CD25, resemble CD25⁺CD4⁺ regulatory T cells (T_reg). Approximately 60% of ATL cases indeed harbor leukemic cells that express FoxP3, a key transcription factor for T_reg cells. HTLV-1 encodes an antisense transcript, HTLV-1 bZIP factor (HBZ), which is expressed in all ATL cases. In this study, we show that transgenic expression of HBZ in CD4⁺ T cells induced T-cell lymphomas and systemic inflammation in mice, resembling diseases observed in HTLV-1 infected individuals. In HBZ-transgenic mice, CD4⁺Foxp3⁺ T_reg cells and effector/memory CD4⁺ T cells increased in vivo. As a mechanism of increased T_reg cells, HBZ expression directly induced Foxp3 gene transcription in T cells. The increased CD4⁺Foxp3⁺ T_reg cells in HBZ transgenic mice were functionally impaired while their proliferation was enhanced. HBZ could physically interact with Foxp3 and NFAT, thereby impairing the suppressive function of T_reg cells. Thus, the expression of HBZ in CD4⁺ T cells is a key mechanism of HTLV-1-induced neoplastic and inflammatory diseases.