Programmed cell death‐1 (PD‐1, CD279) and its widely expressed, inducible ligand, PD‐L1 (CD274), together dampen T cell activation, but whether they are essential for allograft tolerance is unknown. We show, using gene‐deficient mice and blocking mAbs in wild‐type mice, that costimulation blockade is ineffectual in PD‐1^–/– or PD‐L1^–/– allograft recipients, or in wild‐type allograft recipients treated with anti‐PD‐1 or anti‐PD‐L1 mAb. Alloreactive PD‐1^–/– CD4 and CD8 T cells had enhanced proliferation and cytokine production compared to wild‐type controls, and anergy could not be induced in PD‐1‐deficient CD4 T cells. We conclude that without inhibitory signals from PD‐1 ligation, alloantigen‐induced T cell proliferation and expansion cannot be regulated by costimulation blockade, and peripheral tolerance induction cannot occur.