Defective immune regulation plays a permissive role enabling effector cells to initiate and perpetuate tissue damage, eventually resulting in autoimmune disease. Numerical and functional regulatory T-cell (Treg) impairment has been previously reported in autoimmune liver disease (AILD; including autoimmune hepatitis and autoimmune sclerosing cholangitis ASC). However, in these early reports, Tregs were phenotypically defined as CD4+CD25+ or CD4+CD25high cells. In the current study, we reexamined phenotypic and functional properties of Tregs by adopting a more refined definition of these cells that also includes negativity or low level of expression of CD127. We studied 43 AILD patients and 22 healthy subjects (HSs) and found that CD4+CD25+CD127− Tregs were decreased in the former. This decrease was more marked in patients with active disease than in those in remission. In AILD, Treg frequencies correlated inversely with parameters of disease activity and were not affected by immunosuppressive treatment. We also document, for the first time, that, in AILD, bona-fide Tregs produce less interleukin (IL)−10 and are impaired in their ability to suppress CD4+CD25− target cell proliferation, a feature that in HSs, but not in AILDs, is dependent, at least in part, on IL-10 secretion. Decreased IL-10 production by Tregs in AILD is linked to poor responsiveness to IL-2 and phospho signal transducer and activator of transcription 5 up-regulation. Conclusion: Tregs are numerically impaired in AILD, this impairment being more prominent during active disease. Notably, defective IL-10 production, resulting from low Treg responsiveness to IL-2, contributes to Treg functional impairment.