During Helicobacter pylori (H. pylori) infection CD4+ T cells in the gastric lamina propria are hyporesponsive and polarized by Th1/Th17 cell responses controlled by Treg cells. We have previously shown that H. pylori upregulates B7-H1 expression on GEC, which, in turn, suppress T cell proliferation, effector function, and induce Treg cells in vitro. In this study, we investigated the underlying mechanisms and the functional relevance of B7-H1 induction by H. pylori infection to chronic infection. Using H. pylori wild type (WT), cag pathogenicity island (cag PAI-) and cagA- isogenic mutant strains we demonstrated that H. pylori requires its type 4 secretion system (T4SS) as well as its effector protein CagA and peptidoglycan (PG) fragments for B7-H1 upregulation on GEC. Our study also showed that H. pylori uses the p38 MAPK pathway to upregulate B7-H1 expression in GEC. In vivo confirmation was obtained when infection of C57BL/6 mice with H. pylori PMSS1 strain, which has a functional T4SS delivery system, but not with H. pylori SS1 strain lacking a functional T4SS, led to a strong upregulation of B7-H1 expression in the gastric mucosa, increased bacterial load, induction of Treg cells in the stomach, increased IL-10 in the serum. Interestingly, B7-H1-/- mice showed less Treg cells and reduced bacterial loads after infection. These studies demonstrate how H. pylori T4SS components activate the p38 MAPK pathway, upregulate B7-H1 expression by GEC, and cause Treg cell induction; thus, contribute to establishing a persistent infection characteristic of H. pylori.