Post-transplantation cyclophosphamide (PTCy) recently has had a marked impact on human allogeneic hematopoietic cell transplantation (HCT). Yet, our understanding of how PTCy prevents graft-versus-host disease (GVHD) largely has been extrapolated from major histocompatibility complex (MHC)-matched murine skin allografting models that were highly contextual in their efficacy. Herein, we developed a T-cell-replete, MHC-haploidentical, murine HCT model (B6C3F1→B6D2F1) to test the putative underlying mechanisms: alloreactive T-cell elimination, alloreactive T-cell intrathymic clonal deletion, and suppressor T-cell induction. In this model and confirmed in four others, PTCy did not eliminate alloreactive T cells identified using either specific Vβs or the 2C or 4C T-cell receptors. Furthermore, the thymus was not necessary for PTCy's efficacy. Rather, PTCy induced alloreactive T-cell functional impairment which was supported by highly active suppressive mechanisms established within one day after PTCy that were sufficient to prevent new donor T cells from causing GVHD. These suppressive mechanisms included the rapid, preferential recovery of CD4+CD25+Foxp3+ regulatory T cells, including those that were alloantigen-specific, which served an increasingly critical function over time. Our results prompt a paradigm-shift in our mechanistic understanding of PTCy. These results have direct clinical implications for understanding tolerance induction and for rationally developing novel strategies to improve patient outcomes.