In utero hematopoietic-cell transplantation (IUHCT) can induce donor-specific tolerance to facilitate postnatal transplantation. Induction of tolerance requires a threshold level of mixed hematopoietic chimerism. CD26 is a peptidase whose inhibition increases homing and engraftment of hematopoietic cells in postnatal transplantation. We hypothesized that CD26 inhibition would increase donor-cell homing to the fetal liver (FL) and improve allogeneic engraftment following IUHCT. To evaluate this hypothesis, B6GFP bone marrow (BM) or enriched hematopoietic stem cells (HSCs) were transplanted into allogeneic fetal mice with or without CD26 inhibition. Recipients were analyzed for FL homing and peripheral-blood chimerism from 4 to 28 weeks of life. We found that CD26 inhibition of donor cells results in (1) increased homing of allogeneic BM and HSCs to the FL, (2) an increased number of injected animals with evidence of postnatal engraftment, (3) increased donor chimerism levels following IUHCT, and (4) a competitive engraftment advantage over noninhibited congenic donor cells. This study supports CD26 inhibition as a potential method to increase the level of FL homing and engraftment following IUHCT. The resulting increased donor chimerism suggests that CD26 inhibition may in the future be used as a method of increasing donor-specific tolerance following IUHCT.