Studies of T cell anergy in vitro have led to the widely accepted view that anergy is induced by T cell antigen recognition without costimulation. We show that the induction of T cell anergy in vivo is due to an abortive T cell response that requires recognition of B7 molecules, since blocking B7 maintains T cells in an unactivated but functionally competent state. Furthermore, the induction of anergy is prevented by blocking CTLA-4, the inhibitory T cell receptor for B7 molecules. Thus, in vivo T cell anergy may be induced not because of a lack of costimulation, but as a result of specific recognition of B7 molecules by CTLA-4. In contrast, blocking CD28 on T cells prevents priming but not the induction of tolerance. Therefore, the outcome of antigen recognition by T cells is determined by the interaction of CD28 or CTLA-4 on the T cells with B7 molecules.