T cell activation is a proximal event in the initiation of chronic rejection that may ultimately lead to obliterative bronchiolitis (OB) after lung transplantation. In addition to primary signals generated by the T cell receptor, T cell activation relies on costimulatory signals, of which the most important are mediated via interaction between CD28 and its ligands B7-1 and B7-2. In nontreated rat tracheal allografts, B7-2, but not B7-1, expression peaked 10 d after transplantation, unlike in syngeneic grafts, where no B7-2 upregulation was observed. Selective blockade of the CD28/B7-1 T cell costimulatory pathway by a mutant form of CTLA4Ig (cytotoxic T lymphocyte antigen 4 immunoglobulin), CTLA4IgY100F, did not affect epithelial injury or degree of luminal occlusion in rat tracheal allografts. Treatment with CTLA4Ig fusion protein, which blocks both CD28/B7-1 and CD28/B7-2 interaction, significantly delayed the development of epithelial injury and airway occlusion. Immunohistochemical analyses of allografts showed that selective inhibition of the CD28/B7-1 pathway did not affect cytokine expression. In contrast, treatment with CTLA4Ig was associated with a significant decrease in the intragraft production of tumor necrosis factor alpha, interleukin 2, and interferon gamma, as well as slightly increased intragraft expression of interleukin 10. In conclusion, CTLA4Ig-mediated costimulatory blockade delays epithelial injury and attenuates obliterative changes and is associated with marked suppression of helper T cell type 1 (Th1)-dominated cytokine response. These observations emphasize the role of the CD28/B7-2 costimulatory pathway in regulating proinflammatory and Th1 cytokine responses and thereby in the development of epithelial and graft injury gradually leading to obliteration of the airway lumen.