Regulatory T cells (Treg) are important in peripheral tolerance, but their role in establishing and maintaining hematopoietic mixed chimerism and generating central tolerance is unclear. We now show that costimulation blockade using a donor-specific transfusion and anti-CD154 antibody applied to mice given bone marrow and simultaneously transplanted with skin allografts leads to hematopoietic chimerism and permanent skin allograft survival. Chimeric mice bearing intact skin allografts fail to generate effector/memory T cells against allogeneic targets as shown by the absence of IFNgamma-producing CD44(high)CD8+ T cells and in vivo cytotoxicity. Depletion of Tregs by injection of anti-CD4 or anti-CD25 antibody prior to costimulation blockade prevents chimerism, shortens skin allograft survival and leads to generation of effector/memory cytotoxic T cells. Depletion of Tregs by injection of anti-CD4 or anti-CD25 antibody two months after transplantation leads to loss of skin allografts even though mice remain chimeric and exhibit little in vivo cytotoxicity. In contrast, chimerism is lost, but skin allografts survive following naïve T-cell injection. We conclude that hematopoietic chimerism and peripheral tolerance may be maintained by different mechanisms in mixed hematopoietic chimeras.