PD-1 blockade has remarkable response rates in the treatment of melanoma; however, many patients fail to respond, and biomarkers and mechanisms of response remain unknown. We investigated the roles of Tregs, a population of immunosuppressive T-cells, in patient response to nivolumab. Tregs had a decrease in suppressive function in patients with positive outcomes (p= 0.03), but not in patients with negative outcomes. Patients with no evidence of disease (NED) displayed increased percentages of Tregs post-nivolumab (p= 0.04), but relapsing patients did not. RNA-seq analysis revealed genes significantly changed after treatment were distinct between Tcons and Tregs (~ 13% overlap) and between NED and relapsing patient Tregs (~ 2% overlap). Pathway analysis showed an increase in proliferation associated pathways in NED patient Tregs, but not relapsing patients. We found increased phosphoSTAT3 (pSTAT3) expression in Tregs from patients with positive outcomes (p= 0.01), but not in patients with negative outcomes. Mechanistically, in vitro culturing of T-cells with αPD-1 resulted in increases in pSTAT3 expression (p= 0.03) and increased percentages of Tregs (p= 0.001). Culturing with αPD-1 also enhanced production of IL-10 (p= 0.02), and the addition of a STAT3 inhibitor reduced the increases in IL-10 levels (p= 0.01) and Treg percentages (p= 0.01). The addition of an IL-10 neutralizing antibody also reduced the increased Tregs resulting from αPD-1 (p= 0.01). These results support a model in which PD-1 blockade increases pSTAT3 expression leading to enhanced IL-10 production and Treg percentages, suggesting that pSTAT3 induction and reduced suppressive function are biomarkers of melanoma patient response to nivolumab.