Maintenance of peripheral tolerance is essential for homeostasis of the immune system. While central tolerance mechanisms result in deletion of the majority of self-reactive T cells, T lymphocytes specific for self-antigens also escape this process and circulate in the periphery. To control the development of autoimmunity, multiple mechanisms of peripheral tolerance have evolved, including T cell anergy, deletion, and suppression by regulatory T (Treg) cells. The pathway consisting of the programmed cell death 1 (PD-1) receptor (CD279) and its ligands PD-L1 (B7-H1, CD274) and PD-L2 (B7-DC; CD273) plays a vital role in the induction and maintenance of peripheral tolerance. This pathway also regulates the balance between stimulatory and inhibitory signals needed for effective immunity and maintenance of T cell homeostasis. In contrast to this important beneficial role in maintaining T cell homeostasis, PD-1 mediates potent inhibitory signals that prevent the expansion and function of T effector cells and have detrimental effects on antiviral and antitumor immunity. Despite the compelling studies on the significant functional role of PD-1 in mediating inhibition of activated T cells, little is known about how PD-1 blocks T cell activation. Here, we will provide a brief overview of the signaling events that are regulated by PD-1 triggering, and we will discuss their implications on cell intrinsic and extrinsic mechanisms that determine the fate and function of T effector cells.