Activated in immune responses, T lymphocytes differentiate into effector cells with potent immune function. CD28 is the most prominent costimulatory receptor for T-cell activation. However, absence of CD28 costimulation did not completely impair effector function of CD4 or CD8 T cells. Moreover, increasing number of costimulatory molecules are recently found on antigen-presenting cells to regulate T-cell activation. To understand the molecular mechanisms that determine T-cell function or tolerance, we have collectively examined the roles of positive and negative costimulatory molecules. Antigen-specific naïve CD4 and CD8 T cells, only when activated in the absence of both CD28 and ICOS pathways, were completely impaired in effector function. These tolerant T cells not only were anergic with profound defects in TcR signal transduction but also completely lacked expression of effector-specific transcription factors. T-cell tolerance induction in this system requires the action by negative costimulatory molecules; T-cell proliferation and function was partially restored by inhibiting PD-1, B7-H3 or B7S1. This work demonstrates that T-cell function or tolerance is controlled by costimulatory signals.