LPS-activated B cells, transduced with IgG fusion proteins, are highly tolerogenic APCs. To analyze the mechanisms for this B cell-delivered gene therapy, we first followed the fate of CFSE-labeled B cell blasts. These cells primarily localized to the spleen, where a small population persisted for at least 1 mo after injection. By day 7 after injection, ∼95% of the transduced cells had divided at least once, presumably an effect of the in vitro LPS activation into the cycle, because resting cells did not divide. B cells from gld donors were not. tolerogenic, initially suggesting a role for Fas ligand (FasL) in tolerance. Because transduced normal B cells expressed only low levels of FasL and did not kill Fas-expressing Jurkat or A20 B lymphoma cells in vitro, these data suggest that gld B cells are not tolerogenic due to unique characteristics of these B cells rather than the lack of functional FasL expression. The transduced B cell blasts displayed significant up-regulation of both B7 costimulatory molecules, and B7.2 up-regulation was maintained through day 7 in vivo. When B cells from B7 knockout donors were transduced to express Ig fusion proteins, they were not tolerogenic in two different mouse strains and Ag models. Moreover, anti-B7 Ab blocked tolerance induction in this model, a result consistent with a role for B7 in tolerance induction. We propose that tolerance may be induced in this model by B7-driven negative regulatory signaling, but tolerance is maintained by a lack of signal 2, because expression of B7 is eventually lost in vivo.