Dendritic cells (DC) are highly specialised, bone marrow (BM)-derived antigen-presenting cells (APC) that initiate and regulate immune responses. They provide costimulatory signals (in particular, CD40 and the CD28 ligands CD80 and CD86) necessary for naive T cell activation. Functional expression of CD80 and CD86 is blocked by the fusion protein cytotoxic T lymphocyte antigen 4-immunoglobulin (CTLA4Ig), that promotes tolerance induction in animals. Here, replicating mouse (B10; H2b) myeloid DC progenitors, were retrovirally transduced to express CTLA4Ig using the centrifugal enhancement method. Gene product was detected by immunocyto- or histochemistry. Maximal DC transduction efficiency was 62%. Compared with control, zeomycin-resistance gene (Zeo)-transduced DC, CTLA4Ig-expressing cells showed markedly impaired capacity to stimulate naive allogeneic (C3H; H2k) T cell proliferation and cytotoxic T lymphocyte (CTL) generation. Their ability to induce alloantigen-specific T cell hyporesponsiveness was reversed by exogenous IL-2 in secondary mixed leukocyte reactions (MLR). Following local (s.c.) transfer to allogeneic recipients, the genetically modified DC trafficked to T cell areas of draining lymphoid tissue, where transgene expression was detected. Ex vivo analysis of proliferative and CTL responses revealed donor-specific inhibition of alloimmune reactivity by the CTLA4Ig-transduced DC. This effect was associated with marked inhibition of interferon (IFN)-gamma production, but significant augmentation of IL-4 and IL-10 secretion. Thus, retroviral transduction of DC permits in vivo delivery of CTLA4Ig to the precise microenvironment where antigen (Ag) presentation occurs. Comparatively nonimmunogenic retroviral vectors, that allow permanent transgene expression in DC, and promote localized delivery of the immunosuppressive transgene product, promote immune deviation and Ag-specific T cell hyporesponsiveness.