Keratinocytes (KCs) may play important roles for maintenance of peripheral tolerance in the upper layers of the skin. Coinhibitory signals mediated via the programmed death (PD)-1 and its ligand B7-H1 (PD-L1/CD274) are crucial for the downregulation of T cell immune responses and for the maintenance of peripheral tolerance. In this study, to investigate the role of KC-expressed B7-H1 in the regulation of T cell immune responses, we generated transgenic (tg) mice overexpressing B7-H1 under the control of keratin 14 (K14) promoter (K14-B7-H1 tg). K14-B7-H1 tg mice displayed impaired contact hypersensitivity (CH) responses to primary and secondary hapten challenges. The K14-B7-H1 tg mice did not exhibit substantial impairment of cutaneous dendritic cell migration after sensitization and of hapten-specific proliferation and IFN-gamma production of CD4(+) and CD8(+) T cells in the draining lymph nodes, suggesting that overexpression of B7-H1 on KCs did not affect the induction phase of the CH response. The systemic or s.c. injection of hapten-sensitized T cells into the K14-B7-H1 tg mice did not efficiently induce the CH response. IFN-gamma expression and apoptosis of KCs in the challenged ears were impaired in K14-B7-H1 tg mice. IFN-gamma production by presensitized CD8(+) T cells stimulated with hapten-pulsed KCs was markedly impaired for the KCs obtained from the K14-B7-H1 tg mice but was restored by the addition of an anti-B7-H1 mAb. These results suggest that KC-associated B7-H1 directly downregulates the effector function of CD8(+) T cells by associating with PD-1 at local inflammatory sites and that it plays a role in peripheral T cell tolerance against exogenous Ags.