Micropeptides encoded by short open reading frames (sORFs) within long noncoding RNAs (lncRNAs) are beginning to be discovered and characterized as regulators of biological and pathological processes. Here, we find that lncRNA Dleu2 encodes a 17-amino-acid micropeptide, which we name Dleu2-17aa, that is abundantly expressed in T cells. Dleu2-17aa promotes inducible regulatory T (iTreg) cell generation by interacting with SMAD Family Member 3 (Smad3) and enhancing its binding to the Foxp3 conserved non-coding DNA sequence 1 (CNS1) region. Importantly, the genetic deletion of Dleu2-17aa in mice by start codon mutation impairs iTreg generation and worsens experimental autoimmune encephalomyelitis (EAE). Conversely, the exogenous supplementation of Dleu2-17aa relieves EAE. Our findings demonstrate an indispensable role of Dleu2-17aa in maintaining immune homeostasis and suggest therapeutic applications for this peptide in treating autoimmune diseases.