Although it has been recognized since the early days of Owen and Medawar that engraftment of donor stem cells, induced in utero spontaneously or intentionally neonatally, results in life-long unresponsiveness to donor alloantigens. However, successful induction of transplantation tolerance in adult life still represents an unsolved problem. Engraftment of donor stem cells using conventional modalities involves intensive myeloablative or lymphoablative immunosuppression, which is associated with toxicity and mortality and such methods are not suitable for organ allograft recipients. In this chapter, we present an innovative approach for induction of donor-specific unresponsiveness to bone marrow and organ allografts without myeloablative conditioning. Our methods is based on cyclophosphamide-induced, alloantigen-primed lymphocyte depletion. Cyclophosphamide is administered 1 day following infusion of donor hematopoietic cells, thus eliminating predominantly host T lymphocytes reacting against donor cell challenge, and resulting in relative unresponsiveness to donor alloantigens. Subsequently, life-long tolerance to fully mismatched donor skin allografts can be accomplished by a second infusion of stem cells from the same donor, with donor T cells displacing residual alloreactive host cells that may have escaped deletion. Taken together, we believe that induction of true permanent and specific tolerance to organ allografts using donor hematopoietic cells could become a clinical reality in the foreseeable future.