The establishment of immune tolerance to self antigen expressed exclusively in the periphery is a crucial yet incompletely understood feature of the immune system. A dominant concept of peripheral tolerance has been that exposure of T cells to signal one, the TCR-MHC interaction, in the absence of signal two, or costimulation, is a major mechanism of peripheral tolerance. This model suggests that any cell type that expresses MHC-peptide complexes, be they of self or foreign origin, should have the capacity to tolerize antigen-specific T cells when critical costimulatory interactions are interrupted. However, a spectrum of responses, from permanent engraftment to rapid rejection, has been observed in various transplantation models utilizing costimulatory blockade. Therefore we undertook a series experiments to directly assess the tolerogenic potential of donor hematopoietic and parenchymal cells. We find that allogeneic tissues differ profoundly in their ability to promote peripheral tolerance concurrent with combined blockade of B7-CD28 and CD40-CD40L pathways. Non-vascularized and vascularized parenchymal grafts as well as donor-specific transfusions promote varying degrees of donor-specific hyporesponsiveness, but fail to induce donor-reactive T-cell deletion; whereas establishment of stable hematopoietic chimerism promotes specific tolerance mediated by deletion of donor-reactive cells in the periphery.