Substance P (SP) is a tachykinin neuropeptide, implicated in the pathogenesis of various inflammatory conditions and a critical mediator in pain transmission. Recently, the role of SP was described in the pathogenesis of dry eye disease (DED) through its role in the maturation of antigen-presenting cells at the ocular surface after exposure to desiccating stress. However, the effect of SP on regulatory T cells (Tregs), which are functionally impaired in DED, remains unclear. This study examined the phenotypic and functional changes in Tregs in response to SP in DED. The in vitro cultures of normal Tregs in the presence of SP led to a significant reduction in both Treg frequencies and their suppressive function, which was prevented by the addition of an SP receptor (neurokinin-1 receptor) antagonist. Furthermore, in vivo treatment with the neurokinin-1 receptor antagonist in DED mice effectively restored Treg function, suppressed pathogenic T helper 17 response, and significantly ameliorated the disease. Our results show that a significant increase in SP levels promotes Treg dysfunction in DED, and blockade of SP effectively restores Treg function and suppresses DED severity.