Rationale: Repeated antigen-driven proliferations cause CD28 on T-cells to downregulate. We hypothesized alloantigen-induced proliferations could cause CD28 downregulation in lung transplant recipients. Objectives: To ascertain if CD28 downregulation on CD4 T-cells associated with manifestations of allograft dysfunction in lung transplant recipients. Methods: Peripheral blood CD4 T-cells from 65 recipients were analyzed by flow cytometry, cytokine multiplex and proliferative assays, and correlated with clinical events. Measurements and Main Results: Findings that CD28 was present on <90% of total CD4 T-cells were predominantly seen among the recipients with bronchiolitis obliterans syndrome (specificity=88%). Perforin and granzyme B were produced by >50% of the CD4⁺CD28^null cells, but <6% of autologous CD4⁺CD28⁺ cells (p0.006). CD4⁺CD28^null cells also had increased productions of proinflammatory cytokines, but less frequently expressed regulatory T-cell marker FoxP3 (2.1±1.3%), compared to autologous CD4⁺CD28⁺ (9.5±1.4, p=0.01). Cyclosporine A (100 ng/ml) inhibited proliferation of CD4⁺CD28^null cells by 33±11% vs. 68±12% inhibition of CD4⁺CD28^null (p=0.025). FEV₁ fell six months later (0.35±0.04L) in recipients with CD4⁺CD28⁺/CD4_total<90% (CD28% Low) compared to 0.08±0.08L among CD4⁺CD28⁺/CD4_total>90% (CD28% High) recipients (p=0.013). Two-year freedom from death or retransplantation in CD28% Low recipients was 32±10%, vs. 78±6% among the CD28% High subjects (p<0.0001). Conclusions: CD28 downregulation on CD4 cells is associated with bronchiolitis obliterans syndrome and poor outcomes in lung transplantation recipients. CD4⁺CD28^null cells could be important in the progression of allograft dysfunction. These findings may illuminate a novel paradigm of transplantation immunopathogenesis, and suggest CD28 measurements could identify recipients at risk for clinical deteriorations.