Activation of naive T lymphocytes is regulated through a series of discrete checkpoints that maintain unresponsiveness to self. During this multistep process, costimulatory interactions act as inducible signals that allow APCs to selectively mobilize T cells against foreign Ags. In this study, we provide evidence that the anergy-associated E3 ubiquitin ligase GRAIL (gene related to anergy in lymphocytes) regulates expression of the costimulatory molecule CD40L on CD4 T cells. Using its luminal protease-associated domain, GRAIL binds to the luminal/extracellular portion of CD40L and facilitates transfer of ubiquitin molecules from the intracellular GRAIL RING (really interesting new gene) finger to the small cytosolic portion of CD40L. Down-regulation of CD40L occurred following ectopic expression of GRAIL in naive T cells from CD40(-/-) mice, and expression of GRAIL in bone marrow chimeric mice was associated with diminished lymphoid follicle formation. These data provide a model for intrinsic T cell regulation of costimulatory molecules and a molecular framework for the initiation of clonal T cell anergy.