Grafts of thymic epithelium (TE) rudiments restore T cell development and function in allogeneic athymic mice. These TE chimeras are specifically tolerant to grafts of peripheral tissues (e.g. skin and heart) from the TE donor strain, although they harbor peripheral immunocompetent T cells capable of rejecting those grafts. Initial analysis has shown that TE chimeras also harbor TE-selected CD4 T lymphocytes that inhibit graft rejection by tissue-reactive T cells in immunocompetent recipients. Peripheral tolerance in TE chimeras is thus maintained by dominant mechanisms dependent on regulatory CD4 T lymphocytes. Here we show that TE-selected regulatory T cells recruit nontolerant tissue-reactive CD4 and CD8 T cells to express similar regulatory functions. Only recent thymic emigrants, but not peripheral resident mature T cells are susceptible to this process of functional education, which also requires exposure to specific antigens and occurs entirely in the periphery. We propose that these mechanisms play a major role in establishing and maintaining natural self tolerance to tissue-specific antigens.