In utero hematopoietic stem cell transplantation (IUT) has the potential to cure a variety of marrow stem cell defects without using marrow ablative therapy. However IUT for diseases other than SCID has been unsuccessful. To better understand the barriers to successful IUT we wanted to define the role of the B7.1/B7.2 co-stimulatory molecules in inducing tolerance to allogeneic donor bone marrow cells in the fetal murine recipient. We studied the relative role of B7.1 and B7.2 expression on dendritic cells (DC) on engraftment and in generating donor specific tolerance in fetal mice. Mature DC (mDC) from B7.1−/− or B7.2−/− donors and wild type (wt) lineage depleted (lin−) C57Bl/6 (B6) bone marrow (BM) were injected into gestational day (GD) 14 Balb/c fetuses. Recipients of lin− wt BM and B7.1−/− mDC had a significantly lower survival (47.4%, p<0.01) associated with mild-moderate GvHD compared to the recipients of B7.2−/− mDC and lin− BM (82.3%) where none developed GvHD. Engraftment results in blood at 6 weeks post IUT showed, B7.1−/− recipients had multilineage engraftment (4.7±0.8% T cells and 5.7± 1.1% granulocytes) in their blood, but by 12 weeks, only donor CD3+ (predominantly CD8+) cells (2.1±1.3%) were present. The percent H2Kb+ (donor) T cells (predominantly CD4+) in the blood of recipients of lin− wt BM and B7.2−/− was 11.8±8.5% at 6 weeks p<0.001 and 6.5±2.5% at 12 weeks, p=0.006. The circulating donor CD4+ cells were Th2 (CD4+CD25−IL4+IL10+) and Treg (CD4+CD25+IL4−IL10−). Both fractions inhibited the T cell proliferative response in the MLR. Long term engraftment in thymic tissues was found in the tolerant recipients of lin− wt BM and B7.2−/− mDC (13.4±8.3% donor CD3+ T cells). We also found prolonged (rejection by day 36) acceptance of donor skin grafts in 7 of 12 recipients of B7.2−/− mDC and 2 of 5 recipients of B7.2−/− mDC and lin−BM. All third party C3H grafts were rejected by day 14 and 80% of the Balb/c (self) skin grafts were permanently accepted. We hypothesized that tolerized animals would behave similarly to recipients of megadoses of syngeneic BM with an increase in multilineage engraftment. We injected a total of 200x106 male wt B6 lin− BM cells over 5 days into adult IUT recipients of B7.1−/− or B7.2−/− mDC ± lin− wt BM and wt age-matched allogeneic and syngeneic (female) controls. Mice that had received B7.2−/− mDC + lin− BM in utero showed multi-lineage engraftment in the blood. In contrast, the in utero recipients of B7.1−/− mDC + lin− BM showed no significant engraftment (p<0.05). In conclusion, donor DC costimulatory molecules significantly affect survival, engraftment and GvHD; and these responses to B7.2−/− mDC and lin− BM appear to be mediated by both Th2 and Treg donor cells.