Blocking of costimulatory signals for T cell activation leads to tolerance in several transplantation models, but the underlying mechanisms are incompletely understood. We analyzed the involvement of regulatory T cells (Treg) and deletion of alloreactive cells in the induction and maintenance of tolerance after costimulation blockade in a mouse model of graft-vs-host reaction. Injection of splenocytes from the C57BL/6 parent strain into a sublethally irradiated F1 offspring (C57BL/6 × C3H) induced a GVHR characterized by severe pancytopenia. Treatment with anti-CD40L mAb and CTLA4-Ig every 3 days during 3 wk after splenocyte injection prevented disease development and induced a long-lasting state of stable mixed chimerism (>120 days). In parallel, host-specific tolerance was achieved as demonstrated by lack of host-directed alloreactivity of donor-type T cells in vitro and in vivo. Chimerism and tolerance were also obtained after CD25+ cell-depleted splenocyte transfer, showing that CD25+ natural Treg are not essential for tolerance induction. We further show that costimulation blockade results in enhanced Treg cell activity at early time points (days 6–30) after splenocyte transfer. This was demonstrated by the presence of a high percentage of Foxp3+ cells among donor CD4+ cells in the spleen of treated animals, and our finding that isolated donor-type T cells at an early time point (day 30) after splenocyte transfer displayed suppressive capacity in vitro. At later time points (>30 days after splenocyte transfer), clonal deletion of host-reactive T cells was found to be a major mechanism responsible for tolerance.