A major challenge in the field of transplantation is to prevent graft rejection and prolong graft survival. Tolerance induction is a promising way to achieve long-term graft survival without the need for potent immunosuppression and its associated side effects. The recent success of co-stimulatory blockade by the chimeric protein CTLA4Ig in the modulation of the recipient's immune system and the prolongation of graft survival in animal models suggests a possible application of CTLA4Ig in clinical transplantation. To produce sufficient amounts of CTLA4Ig for future clinical application, we sought to use the mammary gland as a bioreactor and produce CTLA4Ig in the milk of transgenic farm animals. Prior to the generation of transgenic farm animals, we tested our strategy in mice. Using the promoter of the sheep beta-lactoglobulin gene, we expressed our CTLA4Ig chimeric gene in the mammary gland of transgenic mice. The yield of CTLA4Ig was fivefold higher in transgenic milk than that from transfected cells. Purified milk-derived CTLA4Ig is biologically active and suppresses T cell activation. We showed that the production of CTLA4Ig in the milk has no adverse immunosuppression effect on the transgenic animals and the offsprings that were fed with the transgenic milk. The findings suggest that the approach to produce CTLA4Ig in milk by transgenesis is feasible; further studies involving farm animals are warranted.