Background: Pegylated-interferon alpha (PegINF alpha) treatment of patients with polycythemia vera (PV) and essential thrombocythemia (ET) has resulted in long-term clinical response, decreased JAK2(V617F) allelic burden and restoration of polyclonal hematopoiesis. The mechanisms of the beneficial effects of PegINFa are not clear, but available evidence suggests direct suppression of JAK2-mutated clone, induction of dormant stem cells to proliferation, and augmentation of an immune effect against PV and ET clones. Methods: We analyzed the phenotype and frequency of peripheral blood lymphocytes (PBL) from PegINFa treated patients and compared them to patients treated with hydroxyurea (HU). Samples collected at various time points before and during treatment were analyzed using multicolor flow cytometry. Results: We found that PegINF alpha increased the frequency of peripheral blood CD4(+) Foxp3(+) regulatory T cells (Treg). Highly suppressive Treg, characterized by co-expression of CD39 and HLA-DR, were also increased in PBL from PegINFa treated patients. We observed an augmentation of cycling CD8(+) T cells, NK cells, and of poorly activated CD38(+) CD8(+) T cells. Our results also suggest that PegINFa increased the frequency of PD-1(+) CD4(+) helper cells and PD-1(+) CD4(+) Foxp3(+) Treg cells. None of these changes were present in HU treated patients. We analyzed the correlation between changes in different T cell populations in the peripheral blood with the changes in JAK2(V617F) allelic burden in clonal granulocytes. Augmentation of Ki-67(+) Treg, HLA-DR+ CD39(+) Treg, Helios(+) Treg and HLA-DR+ CD38(+) CD8(+) T cells correlated with an increase in JAK2(V617F) allelic burden. We also found a positive correlation between PD-1(+) Treg and JAK2(V617F) allelic burden; however, the number of available patients was small (n = 7). Conclusions: We report marked changes in frequencies of PBL subsets after PegINFa treatment, suggesting an immunomodulatory effect by PegINFa. Generation of a more suppressive immune response, as measured by an increase in highly suppressive Treg and poorly activated CD8(+) T cells, correlated with a poor molecular response. In this study, we have not identified changes in the PBL that would indicate the presence of an effective anti-tumor response.