Host immune responses are finely regulated by the opposing effects of Th17 and T regulatory (Treg) cells. Treg cells help to dampen inflammatory processes and Th17 cells facilitate various aspects of immune activation. The differentiation of Th cells depends on a unique combination of stimulants and subsequent activation of diverse transcription factors. In particular, cooperative activation of NFAT and Smad3 leads to the induction of Treg cells, and cooperation among STAT3 and Smad3 switches to the induction of Th17 cells. We have previously shown that the IL-1 receptor associated kinase 1 (IRAK-1) selectively activates STAT3 and inactivates NFAT. Physiological studies have shown that IRAK-1−/− mice are protected from developing various inflammatory diseases, including experimental autoimmune encephalomyelitis and atherosclerosis with unknown mechanism. In this study, we demonstrate that IRAK-1 plays a critical modulatory role in the differentiation of Th17 and Treg cells. Following stimulation with TCR agonists and TGFβ, IRAK-1−/− CD4 Th cells display elevated nuclear NFATc2 levels and increased interaction of NFATc2 and Smad3, resulting in increased expression of Foxp3, a key marker for Treg cells. IRAK-1−/− mice have constitutively higher populations of Treg cells. In contrast, when stimulated with TCR agonists together with IL-6 and TGF-β, IRAK-1−/− CD4 Th cells exhibit attenuated STAT3 Ser727 phosphorylation and reduced expression of IL-17 and RORγt compared with wild-type cells. Correspondingly, IRAK-1 deletion results in decreased IL-17 expression and dampened inflammatory responses in acute and chronic inflammatory mice models. Our data provides mechanistic explanation for the anti-inflammatory phenotypes of IRAK-1−/− mice.