Although the inhibitory receptor CTLA-4 (CD152) has been implicated in peripheral CD4 T-cell tolerance, its mechanism of action remains poorly defined. We analyzed mechanisms of CD4 cell tolerance in a model of tolerance induction involving establishment of mixed hematopoietic chimerism in recipients of fully MHC-mismatched allogeneic bone marrow cells with anti-CD154 mAb. Animals lacking CD80 and CD86 failed to achieve chimerism. We detected no T cell-intrinsic requirement for CD28 for chimerism induction. However, a CD4 T cell-intrinsic signal through CTLA-4 was shown to be essential within the first 48 hours of exposure to alloantigen for the establishment of tolerance and mixed chimerism. This signal must be provided by a recipient CD80/86(+) non-T-cell population. Donor CD80/86 expression was insufficient to achieve tolerance. Together, our findings demonstrate a surprising role for interactions of CTLA-4 expressed by alloreactive peripheral CD4 T cells with CD80/86 on recipient antigen-presenting cells (APCs) in the induction of early tolerance, suggesting a 3-cell tolerance model involving directly alloreactive CD4 cells, donor antigen-expressing bone marrow cells, and recipient antigen-presenting cells. This tolerance is independent of regulatory T cells and culminates in the deletion of directly alloreactive CD4 T cells.