Allogeneic hematopoietic chimerism leading to central tolerance has significant therapeutic potential. Realization of that potential has been impeded by the need for myeloablative conditioning of the host and development of graft-versus-host disease (GVHD). To surmount these impediments, we have adapted a costimulation blockade-based protocol developed for solid organ transplantation for use in stem cell transplantation. The protocol combines donor-specific transfusion (DST) with anti-CD154 mAb. When applied to stem cell transplantation, administration of DST, anti-CD154 mAb, and allogeneic bone marrow leads to hematopoietic chimerism and central tolerance with no myeloablation and no GVHD. Tolerance in this system results from deletion of both peripheral host alloreactive CD8+ T cells and nascent intrathymic alloreactive CD8+ T cells. In the absence of large numbers of host alloreactive CD8+ T cells, the transfusion that precedes transplantation need not be of donor origin, suggesting that both allospecific and non-allospecific mechanisms regulate engraftment. Agents that interfere with peripheral transplantation tolerance impair establishment of chimerism. We conclude that robust allogeneic hematopoietic chimerism and central tolerance can be established in the absence of host myeloablative conditioning using a peripheral transplantation tolerance protocol.