Expression of a retrovirally encoded allogeneic MHC class I gene in bone marrow-derived cells can be used to induce tolerance to the product of the retrovirally transduced gene. In this work we examined whether expression of a retrovirally transduced allogeneic MHC class I gene in bone marrow-derived cells from recombinase-activating gene-1 (RAG-1)-deficient mice was sufficient to induce tolerance when transplanted into conditioned hosts together with bone marrow from MHC-matched wild-type mice. Reconstitution of mice with either MHC-matched RAG-1-deficient or wild-type bone marrow transduced with the allogeneic MHC class I gene H-2K(b) led to long-term expression of K(b) on the surface of bone marrow-derived hematopoietic lineages. T cells from mice reconstituted with H-2K(b)-transduced wild-type bone marrow were tolerant to K(b). In contrast, expression of K(b) in the periphery of mice reconstituted with a mixture of retrovirally transduced RAG-1-deficient bone marrow and mock-transduced wild-type bone marrow fell below detectable levels by 4 wk after transplantation. T cells that developed in these mice appeared to be hyporesponsive to K(b), demonstrating that expression of K(b) on bone marrow-derived APCs was not sufficient to induce tolerance. Our data suggest that induction of tolerance in molecular chimeras requires expression of the retrovirally transduced allogeneic MHC Ag on the surface of mature lymphocytes that populate the host thymus.