Cytotoxic T lymphocyte-associated antigen 4 (CTLA-4) plays a critical role in peripheral tolerance. However, regulatory pathways initiated by the interactions of CTLA-4 with B7 counterligands expressed on antigen-presenting cells are not completely understood. We show here that long-term survival of pancreatic islet allografts induced by the soluble fusion protein CTLA-4-immunoglobulin (CTLA-4-Ig) is contingent upon effective tryptophan catabolism in the host. In vitro, we show that CTLA-4-Ig regulates cytokine-dependent tryptophan catabolism in B7-expressing dendritic cells. These data suggest that modulation of tryptophan catabolism is a means by which CTLA-4 functions in vivo and that CTLA-4 acts as a ligand for B7 receptor molecules that transduce intracellular signals.