We previously reported that ex vivo blockade of the CD40:CD40L costimulatory pathway in primary mixed lymphocyte reaction cultures resulted in profound in vitro secondary hyporesponsiveness and 30-fold or greater protection from graft-versus-host-disease (GVHD) lethality. Present studies demonstrate that tolerance induction via costimulatory blockade also results in the generation of a potent immunoregulatory cell that inhibits both naive and primed alloresponses. The immunoregulatory capacity was dependent upon cell-to-cell contact that prevented the full activation of the naive or primed cells. The inhibitory effect of tolerized cells did not preclude the response of naive T cells to nominal protein antigen if antigen was present at high concentration. However, under suboptimal antigen concentration, nonspecific inhibition of responses occurred. The tolerized regulatory cell population maintained a polyclonal T-cell receptor V beta repertoire that was broader than in control primed cultures. These data, the first to demonstrate that tolerance induction via CD40:CD40L costimulatory blockade results in potent regulatory function, are relevant to bone-marrow and solid-organ transplantation. The generation of potent immunoregulatory capacity during tolerization via CD40:CD40L blockade provides a fail-safe mechanism to control alloreactive T cells that may have escaped tolerization. These potent regulatory cells may be clinically exploitable for the treatment and prevention of GVHD or autoimmunity.