Regulatory T cells have been described to specifically accumulate at the site of regulation together with effector T cells and antigen-presenting cells, establishing a state of local immune privilege. However the mechanisms of this interplay remain to be defined. We previously demonstrated, in a fully MHC mismatched rat cardiac allograft combination, that a short-term treatment with a deoxyspergualine analogue, LF15-0195, induces long-term allograft tolerance with a specific expansion of regulatory CD4+CD25+T cells that accumulate within the graft. In this study, we show that following transfer of regulatory CD4+T cells to a secondary irradiated recipient, regulatory CD25+Foxp3+ and CD25+Foxp3(-) CD4+T cells accumulate at the graft site and induce graft endothelial cell expression of Indoleamine 2, 3-dioxygenase (IDO) by an IFNgamma-dependent mechanism. Moreover, in vivo transfer of tolerance can be abrogated by blocking IFNgamma or IDO, and anti-IFNgamma reduces the survival/expansion of alloantigen-induced regulatory Foxp3+CD4+T cells. Together, our results demonstrate interrelated mechanisms between regulatory CD4+CD25+T cells and the graft endothelial cells in this local immune privilege, and a key role for IFNgamma and IDO in this process.