Immunoglobulin-like transcript 2 (ILT2/LILRB1/LIR1/CD85j) is an inhibitory receptor broadly expressed on leukocytes and antigen-presenting cells that recognizes HLA-class I and human cytomegalovirus UL18 proteins. The function of this receptor is to generate negative signals or to inhibit positive signals. Here, we demonstrate the model to study the function of ILT2 in vivo using a newly generated transgenic mouse expressing the human inhibitory receptor on T, B, NK, and NKT cells. ILT2 expression affects thymocyte development and targets the proximal TCR signaling pathway, resulting in long-term survival or acceptance of skin allografts. The phenotype and constitutive tyrosine phosphorylation of ILT2 in transgenic mice illustrate the possible existence of a murine ligand. We report here that H-2Db, a murine MHC class I molecule, associates with human ILT2 in vivo. This engagement with ILT2 directs effects on thymocyte development, negative regulation of TCR signaling, T cell activation, and alloimmune responses. Our finding provides support for an important inhibitory function of ILT2 in T cells in vivo and opens up strategies for targeting proximal TCR signaling for prevention of allograft rejection.