Pathogenesis of most chronic human diseases, including chronic infections, autoimmune diseases and cancers, often involves a persistent, unresolved inflammatory response. The molecular mechanisms that determine the conversion of an acute inflammatory response into a chronic process had puzzled researchers for many years. Recent studies reveal that B7-H1 (CD274, PD-L1), a newly identified co-stimulatory molecule, possesses dual functions of co-stimulation of naïve T cells and inhibition of activated effector T cells. The aberrant cellular expression and deregulated function of B7-H1 have been reported during chronic viral and intracellular bacterial infection, as well as in many autoimmune diseases and cancers. Importantly, the deregulation of B7-H1’s dual functions appears to be associated with a prolonged and incomplete immune response by luring naïve T cells for activation and dampening activated effector T cells. Moreover, development of strategies targeting B7-H1 signals provides a new and promising approach to manipulate the devastating diseases associated with chronic inflammation. Thus, B7-H1 may play a critical immunoregulatory role in the chronicity of inflammatory responses.