Naive CD4⁺ T cells differentiate into diverse effector and regulatory lineages to orchestrate immunity and tolerance. Here we found that the differentiation of proinflammatory T helper type 1 (T_H1) cells and anti-inflammatory Foxp3⁺ regulatory T cells (T_reg cells) was reciprocally regulated by S1P₁, a receptor for the bioactive lipid sphingosine 1-phosphate (S1P). S1P₁ inhibited the generation of extrathymic and natural T_reg cells while driving T_H1 development in a reciprocal manner and disrupted immune homeostasis. S1P₁ signaled through the kinase mTOR and antagonized the function of transforming growth factor-β mainly by attenuating sustained activity of the signal transducer Smad3. S1P₁ function was dependent on endogenous sphingosine kinase activity. Notably, two seemingly unrelated immunosuppressants, FTY720 and rapamycin, targeted the same S1P₁ and mTOR pathway to regulate the dichotomy between T_H1 cells and T_reg cells. Our studies establish an S1P₁-mTOR axis that controls T cell lineage specification.