Immune regulatory CD4⁺CD25⁺ cells play a vital role in the induction and maintenance of self-tolerance and are essential for T cell homeostasis and the prevention of autoimmunity. Induction of tolerance to allogeneic donor grafts is a clinically desirable goal in bone marrow and solid organ transplantation. To determine whether CD4⁺CD25⁺ cells regulate T cell responses to alloantigen and are critical for tolerance induction, murine CD4⁺ T cells were tolerized to alloantigen via ex vivo CD40 ligand (CD40L)/CD40 or CD28/cytotoxic T lymphocyte–associated antigen 4/B7 blockade resulting in secondary mixed leukocyte reaction hyporesponsiveness and tolerance to alloantigen in vivo. CD4⁺CD25⁺ T cells were found to be potent regulators of alloresponses. Depletion of CD4⁺CD25⁺ T cells from the CD4⁺ responder population completely abrogated ex vivo tolerance induction to alloantigen as measured by intact responses to alloantigen restimulation in vitro and in vivo. Addback of CD4⁺CD25⁺ T cells to CD4⁺CD25⁻ cultures restored tolerance induction. These data are the first to indicate that CD4⁺CD25⁺ cells are essential for the induction of tolerance to alloantigen and have important implications for tolerance-inducing strategies targeted at T cell costimulatory pathways.