Thymic epithelium is involved in negative selection, but its precise role in selecting the CD4 T cell repertoire remains elusive. By using two transgenic mice, we have investigated how medullary thymic epithelium (mTE) and bone marrow (BM)-derived cells contribute to tolerance of CD4 T cells to nuclear beta-galactosidase (beta-gal). CD4 T cells were not tolerant when beta-gal was expressed in thymic BM-derived cells. In contrast, CD4 T cells of mice expressing beta-gal in mTE were tolerized. Tolerance resulted from presentation of endogenous beta-gal by mTE cells but not from cross-priming. mTE cells presented nuclear beta-gal to a Th clone in vitro, while thymic dendritic cells did not. The data indicate that mTE but not thymic BM-derived cells can use a MHC class II endogenous presentation pathway to induce tolerance to nuclear proteins.