Unlike graft-resident donor-derived hemopoietic APCs, which decrease in number over time after transplantation, vascular endothelial cells are lifelong residents of a vascularized allograft. Endothelial cells are potent APCs for allogeneic CD8+ T lymphocytes but are unable to induce proliferation of allogeneic CD4+ T lymphocytes. Although the reason for this differential response has been poorly understood, here we report that alloantigen presentation by vascular endothelium to CD4+ T lymphocytes activates and induces CD4+ 25+ Foxp3+ regulatory T cells, which can inhibit proliferation of alloreactive T cells both in vitro and in vivo. This process occurs independently of B7. 1 costimulation but is dependent on programmed death ligand 1 (B7-H1). This finding may have important implications for tolerance induction in transplantation.