NOD mice model human type 1 diabetes and have been used to investigate tolerance induction protocols for islet transplantation in a setting of autoimmunity. Costimulation blockade-based tolerance protocols that induce prolonged skin and permanent islet allograft survival in non-autoimmune mice have failed in NOD mice. To investigate the underlying mechanisms, we generated NOD hematopoietic chimeras. We were able to show that dendritic cell maturation defects seen in NOD mice are partially corrected in mixed hematopoietic chimeras. Furthermore, skin allograft survival was dependent upon the phenotype of the bone marrow donor, demonstrating that in the NOD the resistance to tolerance induction resides in the hematopoietic compartment. In addition, we studied congenic NOD mice bearing insulin dependent diabetes (Idd) loci that reduce diabetes incidence. The incidence of diabetes is reduced in NOD.B6 Idd3 mice, and virtually absent in NOD.B6 Idd3Idd5 mice. Islet allograft survival in NOD.B6 Idd3 mice is prolonged as compared to NOD mice, and in NOD.B6 Idd3Idd5 mice islet allograft survival is similar to that achieved in C57BL/6 mice. Alloreactive CD8 T cell depletion in NOD mice treated with costimulation blockade is impaired, but is partially restored in NOD.B6 Idd3 mice, and completely restored in NOD.B6 Idd3Idd5 mice. Idd3 results from variations in Il2 gene transcription. We hypothesized insufficient levels of IL-2 in NOD mice contributes to impaired deletion of alloreactive CD8 T cells and shortened islet allograft survival. We observed using synchimeric mice that co-administration of exogenous IL-2 to NOD mice treated with costimulation blockade led to deletion of alloreactive CD8 T cells comparable to that in C57BL/6 mice and prolonged islet allograft survival. However, some Idd loci impaired the induction of transplantation tolerance. These data suggest that Idd loci can facilitate or impair induction of transplantation tolerance by costimulation blockade, and that Idd3 (IL-2) is critical component in this process.