The establishment of a chronic hepatitis C (CHC) infection is associated with defective HCV-specific T cell responses. Recent studies suggest that negative T cell regulators such as programmed death 1 (PD-1) contribute to the impairment of virus-specific T cell functions in chronic viral infections. However, the implication of peripheral monocytes from CHC patients in the inhibition of HCV-specific T cell responses is only partially defined. In this study, we found that B7-H1, a ligand of PD-1, was significantly up-regulated on monocytes of CHC patients. Proliferation of T cells in response to anti-CD3 antibody was directly suppressed by B7-H1+CD14+ monocytes, and this suppression was reversed by addition of antagonistic B7-H1 mAb. Furthermore, blocking of monocyte-associated B7-H1 (moB7-H1) significantly enhanced the frequency of IFN-gamma-producing, HCV-specific CD4+ and CD8+ effector T cells and the production of Th1 cytokines, such as IL-2 but not Th2 cytokines, including IL-4 and IL-10. Upon B7-H1 blockade, production of perforin was also increased in CD8+ T cells stimulated with HCV peptides. Our findings suggest that moB7-H1 inhibits HCV-specific CD4+ and CD8+ T lymphocyte proliferation and suppresses Th1 cytokine production and perforin secretion. Blockade of the B7-H1 pathway thus represents an attractive approach in the treatment of chronic HCV infection.