Short-term results of renal transplantation have improved considerably in the past 20 yr; however, similar improvements in long-term outcome have not been achieved. The primary cause of late graft loss is chronic rejection that might be treated by gene therapeutic approaches. Ideally, one would like to impair locally the contact between transplant antigen and the host immune system without compromising the generalized immune competence of the recipient. This can be achieved by local expression of the therapeutic protein in the site of interest using gene therapy. Here it is shown that chronic allograft rejection can be prevented effectively by local delivery of recombinant adeno-associated virus (AAV) vectors that encode the CTLA4Ig immunosuppressant protein to the donor kidney in a fully MHC-mismatched rat strain combination. AAV CTLA4Ig prevented progressive proteinuria and protected transplant kidneys from renal structural injury. A population of anergic T cells with regulatory activity, which eventually were responsible for the induction of tolerance, were found in recipient lymph nodes and in the graft as long as 120 d after transplantation. These data indicate that AAV-mediated CTLA4Ig gene transfer to donor graft represents a promising tool to prevent the onset of chronic rejection and circumvent the unwanted systemic adverse effects of the administration of immunomodulatory protein.