We previously demonstrated that L-selectin (CD62L)-dependent T cell homing to lymph nodes (LN) is required for tolerance induction to alloantigen. To explore the mechanisms of this observation, we analyzed the development and distribution of regulatory T cells (Treg), which play an important protective role against allograft rejection in transplantation tolerance. Alloantigen-specific tolerance was induced using either anti-CD2 plus anti-CD3 mAbs, or anti-CD40L mAbs plus donor-specific transfusion, in fully mismatched (BALB/c donor, C57BL/6 recipient) vascularized cardiac allografts. An expansion of CD4+ CD25+ CD62L high T cells was observed specifically within the LN of tolerant animals, but not in other anatomic sites or under nontolerizing conditions. These cells exhibited a substantial up-regulation of Foxp3 expression as measured by real-time PCR and by fluorescent immunohistochemistry, and possessed alloantigen-specific suppressor activity. Neither LN nor other lymphoid cells expressed the regulatory phenotype if recipients were treated with anti-CD62L mAbs, which both prevented LN homing and caused early allograft rejection. However, administration of FTY720, a sphingosine 1-phosphate receptor modulator that induces CD62L-independent T cell accumulation in the LNs, restored CD4+ CD25+ Treg in the LNs along with graft survival. These data suggest that alloantigen-specific Foxp3+ CD4+ CD25+ Treg develop and are required within the LNs during tolerization, and provide compelling evidence that distinct lymphoid compartments play critical roles in transplantation tolerance.