We describe a tolerance-based stem cell transplantation protocol that combines sublethal radiation with transient blockade of the CD40-CD154 costimulatory pathway using an anti-CD154 antibody. With this protocol, we established hematopoietic chimerism in BALB/c mice transplanted with fully allogeneic C57BL/6 bone marrow. The percentage of donor-origin mononuclear cells in recipients was more than 99%. In addition, all chimeric mice treated with anti-CD154 antibody remained free of graft-versus-host disease (GVHD) and accepted donor-origin but not third-party skin allografts. It was similarly possible to create allogeneic hematopoietic chimerism in NOD/Lt mice with spontaneous autoimmune diabetes. Pancreatic islet allografts transplanted into chimeric NOD/Lt mice were resistant not only to allorejection but also to recurrence of autoimmunity. We conclude that it is possible to establish robust allogeneic hematopoietic chimerism in sublethally irradiated mice without subsequent GVHD by blocking the CD40-CD154 costimulatory pathway using as few as 2 injections of anti-CD154 antibody. We also conclude that chimerism created in this way generates donor-specific allograft tolerance and reverses the predisposition to recurrent autoimmune diabetes in NOD/Lt mice, enabling them to accept curative islet allografts.