A single dose of CTLA4Ig, an inhibitor of CD28-mediated T cell costimulation, given 2 days after transplantation induces specific unresponsiveness to alloantigens in vivo. However, the mechanisms responsible are unknown. Using pigeon cytochrome c as a model Ag, we monitored the effect of CTLA4Ig on the fate of Ag-reactive T cells in normal mice and on pigeon cytochrome c-specific TCR transgenic cells adoptively transferred into congenic mice. CTLA4Ig significantly inhibits immunization with pigeon cytochrome c. In particular, ELISA and ELISPOT assays indicate an 80 to 90% reduction in Th1 (i.e, IL-2 and IFN-gamma) cytokine production and in the numbers of cytokine-producing cells. Interestingly, despite this profound reduction in cytokine-producing cells, Ag-reactive T cells expand in CTLA4Ig-treated animals, although the degree of expansion is reduced by 50% compared with that in control Ig-treated animals. Thus, loss of Th1 cytokine production in CTLA4Ig-treated animals is not fully explained by the decreased expansion of Ag-specific T cells. These results suggest two mechanisms of action for CTLA4Ig in vivo: inhibition of expansion of Ag-reactive cells and induction of anergy in the residual population.