Expression of claudin-2, a tight junction protein, is highly upregulated during inflammatory bowel disease (IBD) and, due to its association with epithelial permeability, has been postulated to promote inflammation. Notably, claudin-2 has also been implicated in the regulation of intestinal epithelial proliferation. However, precise role of claudin-2 in regulating colonic homeostasis remains unclear. Here, we demonstrate, using Villin-Claudin-2 transgenic mice, that increased colonic claudin-2 expression augments mucosal permeability as well as colon and crypt length. Most notably, despite leaky colon, Cl-2TG mice were significantly protected against experimental colitis. Importantly, claudin-2 expression increased colonocyte proliferation and provided protection against colitis-induced colonocyte death in a PI-3Kinase/Bcl-2-dependent manner. However, Cl-2TG mice also demonstrated marked suppression of colitis-induced increases in immune activation and associated signaling, suggesting immune tolerance. Accordingly, colons from naive Cl-2TG mice harbored significantly increased numbers of regulatory (CD4(+)Foxp3(+)) T cells than WT littermates. Furthermore, macrophages isolated from Cl-2TG mouse colon exhibited immune anergy. Importantly, these immunosuppressive changes were associated with increased synthesis of the immunoregulatory cytokine TGF-β by colonic epithelial cells in Cl-2TG mice compared with WT littermates. Taken together, our findings reveal a critical albeit complex role of claudin-2 in intestinal homeostasis by regulating epithelial permeability, inflammation and proliferation and suggest novel therapeutic opportunities.