Peripheral tolerance is essential for immunological homeostasis. Tolerant T cells are thought to arise after T cell receptor ligation in conditions that are nonpermissive for replication. Here we have investigated the function of the cell cycle inhibitor p27(Kip1) in tolerance induction in vivo using naive T cell receptor-transgenic cells lacking the cyclin-dependent kinase (Cdk)-binding domain of p27(Kip1)(p27delta). Wild-type but not p27delta cells underwent tolerization. Tolerized wild-type cells had impaired Cdk2 and Cdc2 kinase activity and failed to phosphorylate the checkpoint inhibitor Smad3, leading to enhanced expression of the Cdk inhibitor p15. In contrast, p27delta cells proliferated in tolerizing conditions because of Cdk kinase activation and phosphorylation of Smad3, which resulted in no upregulation of p15. Smad3 'knockdown' prevented tolerance induction, whereas expression of a Smad3 mutant resistant to Cdk-mediated phosphorylation recapitulated molecular and functional events of tolerance. Thus, p27(Kip1) is required during induction of tolerance and Smad3 regulates T cell responses 'downstream' of p27(Kip1).