Tolerance to alloantigen may be induced in rats by administration of blood followed by transplantation of a renal allograft. The mechanism of this tolerance was investigated by directly analyzing the functional activity of graft-infiltrating cells. We have previously shown cytotoxic T lymphocyte infiltration of, and major histocompatibility complex induction on, grafts of tolerant animals. We now report that cells isolated from the grafts of tolerant rats show a reduced expression of the p55 interleukin 2 receptor (IL-2R) chain on the cell surface compared with that seen on the cells of untreated animals. Scatchard analysis further reveals low expression of high affinity IL-2R. This is due to reduced transcription of both IL-2R alpha and beta chain mRNAs and results in a reduced ability of cells to proliferate in response to IL-2. Cells isolated from tolerant animals are unable to make biologically active IL-2 in culture, whereas cells from untreated animals make high levels. This is not reflected at the mRNA level as the IL-2 gene is induced in both tolerant and untreated animals to similar levels. The induction of tolerance is abrogated by administration of recombinant IL-2 to animals at the time of transplantation. Thus, we conclude that an altered regulation of the IL-2 pathway results in tolerance in these alloantigen-treated and transplanted animals.