In systemic lupus erythematosus (SLE), perturbed immunoregulation underpins a pathogenic imbalance between regulatory and effector CD4+ T-cell activity. However, to date, the characterization of the CD4+ regulatory T cell (Treg) compartment in SLE has yielded conflicting results. Here we show that patients have an increased frequency of CD4+FOXP3+ cells in circulation owing to a specific expansion of thymically-derived FOXP3+HELIOS+ Tregs with a demethylated FOXP3 Treg-specific demethylated region. We found that the Treg expansion was strongly associated with markers of recent immune activation, including PD-1, plasma concentrations of IL-2 and the type I interferon biomarker soluble SIGLEC-1. Since the expression of the negative T-cell signaling molecule PTPN22 is increased and a marker of poor prognosis in SLE, we tested the influence of its missense risk allele Trp620 (rs2476601C>T) on Treg frequency. Trp620 was reproducibly associated with increased frequencies of thymically-derived Tregs in blood, and increased PD-1 expression on both Tregs and effector T cells (Teffs). Our results support the hypothesis that FOXP3+ Tregs are increased in SLE patients as a consequence of a compensatory mechanism in an attempt to regulate pathogenic autoreactive Teff activity. We suggest that restoration of IL-2-mediated homeostatic regulation of FOXP3+ Tregs by IL-2 administration could prevent disease flares rather than treating at the height of a disease flare. Moreover, stimulation of PD-1 with specific agonists, perhaps in combination with low-dose IL-2, could be an effective therapeutic strategy in autoimmune disease and in other immune disorders.