CTLA‐4 is a critical gatekeeper of T‐cell activation and immunological tolerance and has been implicated in patients with a variety of autoimmune diseases through genetic association. Since T cells from patients with the autoimmune disease systemic lupus erythematosus (SLE) display a characteristic hyperactive phenotype, we investigated the function of CTLA‐4 in SLE. Our results reveal increased CTLA‐4 expression in FOXP3⁻ responder T cells from patients with SLE compared with other autoimmune rheumatic diseases and healthy controls. However, CTLA‐4 was unable to regulate T‐cell proliferation, lipid microdomain formation and phosphorylation of TCR‐ζ following CD3/CD28 co‐stimulation, in contrast to healthy T cells. Although lupus T cells responded in vitro to CD3/CD28 co‐stimulation, there was no parallel increase in CTLA‐4 expression, which would normally provide a break on T‐cell proliferation. These defects were associated with exclusion of CTLA‐4 from lipid microdomains providing an anatomical basis for its loss of function. Collectively our data identify CTLA‐4 dysfunction as a potential cause for abnormal T‐cell activation in patients with SLE, which could be targeted for therapy.