Posttransplantation cyclophosphamide (PTCy) recently has had a marked impact on human allogeneic hematopoietic cell transplantation (HCT). Yet our understanding of how PTCy prevents graft-versus-host disease (GVHD) largely has been extrapolated from MHC-matched murine skin-allografting models that were highly contextual in their efficacy. Herein, we developed a T cell–replete, MHC-haploidentical, murine HCT model (B6C3F1→B6D2F1) to test the putative underlying mechanisms: alloreactive T cell elimination, alloreactive T cell intrathymic clonal deletion, and suppressor T cell induction. In this model and as confirmed in four others, PTCy did not eliminate alloreactive T cells identified using either specific Vβs or the 2C or 4C T cell receptors. Furthermore, the thymus was not necessary for PTCy’s efficacy. Rather, PTCy induced alloreactive T cell functional impairment, which was supported by highly active suppressive mechanisms established within one day after PTCy that were sufficient to prevent new donor T cells from causing GVHD. These suppressive mechanisms included the rapid, preferential recovery of CD4⁺CD25⁺Foxp3⁺ regulatory T cells, including those that were alloantigen specific, which served an increasingly critical function over time. Our results prompt a paradigm shift in our mechanistic understanding of PTCy. These results have direct clinical implications for understanding tolerance induction and for rationally developing novel strategies to improve patient outcomes.