Recently, clinical trials of lenvatinib plus pembrolizumab in HCC have displayed an impressive objective response rate. This study aimed to clarify the mechanism for optimal patient selection. First, in patients with HCC, lenvatinib-treated recurrent tumors had lower programmed death ligand 1 (PD-L1) expression and regulatory T cell (Treg) infiltration compared with matched primary tumors. Consistently, in C57BL/6 wild-type mice receiving anti-programmed cell death 1 (PD-1) therapy, PD-L1 expression and Treg infiltration in s.c. tumors were reduced when adding lenvatinib to the scheme. Mechanistically, on the one hand, FGF receptor 4 (FGFR4) was the most pivotal target in PD-L1 down-regulation by lenvatinib in vitro. Furthermore, lenvatinib reinforced the proteasomal degradation of PD-L1 by blocking the FGFR4-glycogen synthase kinase 3β axis and rescued the sensitivity of interferon-γ-pretreated HCC cells to T-cell killing by targeting FGFR4. On the other hand, the level of IL-2 increased after anti-PD-1 treatment, but IL-2-mediated Treg differentiation was blocked by lenvatinib through targeting FGFR4 to restrain signal transducer and activator of transcription 5 (STAT5) phosphorylation. By regulating the variations in the number of Tregs and the tumor FGFR4 level in C57BL/6-forkhead box protein P3 (Foxp3DTR ) mice, we found that high levels of FGFR4 and Treg infiltration sensitized tumors to the combination treatment. Finally, high levels of FGFR4 and Foxp3 conferred immune tolerance but better response to the combined therapy in patient cohorts. Lenvatinib reduced tumor PD-L1 level and Treg differentiation to improve anti-PD-1 efficacy by blocking FGFR4. Levels of FGFR4 expression and Treg infiltration in tumor could serve as biomarkers for screening patients with HCC using lenvatinib plus anti-PD-1 combination therapy.