Cytokine genes are targets of multiple epigenetic mechanisms in T lymphocytes. 5-azacytidine (5-azaC) is a nucleoside-based DNA methyltransferase inhibitor that induces demethylation and gene reactivation. In the current study, we analyzed the effect of 5-azaC in T-cell function and observed that 5-azaC inhibits T-cell proliferation and activation, blocking cell cycle in the G0 to G1 phase and decreasing the production of proinflammatory cytokines such as tumor necrosis factor-α and interferon-γ. This effect was not attributable to a proapoptotic effect of the drug but to the down-regulation of genes involved in T-cell cycle progression and activation such as CCNG2, MTCP1, CD58, and ADK and up-regulation of genes that induce cell-growth arrest, such as DCUN1D2, U2AF2, GADD45B, or p53. A longer exposure to the drug leads to demethylation of FOXP3 promoter, overexpression of FOXP3, and expansion of regulatory T cells. Finally, the administration of 5-azaC after transplantation prevented the development of graft-versus-host disease, leading to a significant increase in survival in a fully mismatched bone marrow transplantation mouse model. In conclusion, the current study shows the effect of 5-azaC in T lymphocytes and illustrates its role in the allogeneic transplantation setting as an immunomodulatory drug, describing new pathways that must be explored to prevent graft-versus-host disease.