Induction of molecular chimerism following reconstitution of mice with autologous bone marrow cells expressing a retrovirally encoded allogeneic MHC class I Ag results in donor-specific tolerance. To investigate the mechanism by which CD4 T cells that recognize allogeneic MHC class I through the indirect pathway of Ag presentation are rendered tolerant in molecular chimeras, transgenic mice expressing a TCR on CD4 T cells specific for peptides derived from K(b) were used. CD4 T cells expressing the transgenic TCR were detected in mice reconstituted with bone marrow cells transduced with retroviruses carrying the gene encoding H-2K(b), albeit detection was at lower levels than in mice receiving mock-transduced bone marrow. Despite the presence of CD4 T cells expressing an alloreactive TCR, mice receiving H-2K(b)-transduced bone marrow permanently accepted K(b) disparate skin grafts. CD4+CD25+ T cells from mice reconstituted with H-2K(b)-transduced bone marrow prevented rejection of K(b) disparate skin grafts when adoptively transferred into immunodeficient mice along with effector T cells, suggesting that induction of molecular chimerism leads to the generation of donor specific regulatory T cells, which may be involved in preventing alloreactive CD4 T cell responses that lead to rejection.