We used a novel approach to study the role of CD28-B7 T cell costimulatory blockade in experimental autoimmune encephalomyelitis (EAE) in the Lewis rat model. APCs were incubated in vitro with CTLA4Ig and the encephalitogenic peptide p71-90 of myelin basic protein. Systemic injection of APCs treated ex vivo with p71-90 and CTLA4Ig before immunization protected animals from clinical EAE. Systemic injection of APCs treated with CTLA4Ig alone, CTLA4Ig and control peptide, peptide alone, or peptide and control Ig was not protective. Injection of APCs treated ex vivo with CTLA4Ig and p71-90 on the day of immunization was also protective, but delaying the injection till day 7 after immunization impaired the protective effect. Immunohistologically, protected animals had decreased inflammatory responses, with inhibition of Th1 and sparing of Th2 cytokines in the brain. Preincubation of APCs with p71-90 and a mutant form of CTLA4Ig that binds only B7-1 also protected animals from developing EAE. These results suggest that ex vivo blockade of CD28-B7-1 leads to the generation of regulatory cells, presumably Th2, which inhibit the generation or priming of encephalitogenic T cells and suppress the autoimmune response to the specific Ag in vivo. These observations have therapeutic implications for autoimmune diseases and transplantation.