Activation of TLR4 by administration of LPS shortens the survival of skin allografts in mice treated with costimulation blockade through a CD8 T cell-dependent, MyD88-dependent, and type I IFN receptor-dependent pathway. The effect of TLR activation on the establishment of allogeneic hematopoietic chimerism in mice treated with costimulation blockade is not known. Using a costimulation blockade protocol based on a donor-specific transfusion (DST) and a short course of anti-CD154 mAb, we show that LPS administration at the time of DST matures host alloantigen-presenting dendritic cells, prevents the establishment of mixed allogeneic hematopoietic chimerism, and shortens survival of donor-specific skin allografts. LPS mediates its effects via a mechanism that involves both CD4(+) and CD8(+) T cells and results from signaling through either the MyD88 or the type I IFN receptor pathways. We also document that timing of LPS administration is critical, as injection of LPS 24 h before treatment with DST and anti-CD154 mAb does not prevent hematopoietic engraftment but administration the day after bone marrow transplantation does. We conclude that TLR4 activation prevents the induction of mixed allogeneic hematopoietic chimerism through type I IFN receptor and MyD88-dependent signaling, which leads to the up-regulation of costimulatory molecules on host APCs and the generation of alloreactive T cells. These data suggest that distinct but overlapping cellular and molecular mechanisms control the ability of TLR agonists to block tolerance induction to hematopoietic and skin allografts in mice treated with costimulation blockade.