A major process through which the immune system becomes tolerant to self proteins involves the deletion of self reactive cells in the thymus. However, T cells reactive to peripheral tissue-specific proteins can escape this deletion and become tolerized in the periphery by a variety of mechanisms. We report here, contrary to expectation, that the pancreas-specific protein, elastase I, is also expressed at a low level in the thymus, and that this thymic expression contributes to tolerance induction. To study the mechanism of this tolerance induction, we utilized a double transgenic mouse model. In these mice the expression of a model protein, SV40 T antigen, is directed by the elastase I promoter and hence parallels elastase I expression in the pancreas and thymus. These mice were crossed with mice transgenic for a TCR specific for T antigen, so the majority of thymocytes and T cells in these mice express the transgene. In double transgenic mice we find that thymic expression of T antigen results in anergic thymocytes which also show a reduction of Th1 activity with no decrease in Th2 activity. These functional characteristics persist in peripheral T cells, but there is also a depletion in the number of T antigen reactive T cells in lymph nodes. Chimeras were constructed which directly demonstrated that the thymus is the site of tolerance induction and that the tolerizing element is thymic epithelium. We propose that the loss of Th1 activity as a consequence of the thymic epithelium being encountered by tissue-specific proteins results in the functional tolerization of CTL in vivo, despite the fact that CTL are fully functional in vitro. In this way autoimmune destruction is contained. Thymic expression of peripheral proteins may therefore be an additional way in which tolerance to peripheral proteins can be achieved.