The outcome of T-cell-mediated responses, immunity or tolerance, critically depends on the balance of cytopathic versus regulatory T (Treg) cells. In the creation of stable tolerance to MHC incompatible allografts, reducing the unusually large mass of donor-reactive cytopathic T effector (Teff) cells via apoptosis is often required. Cyclosporine (CsA) blocks activation-induced cell death (AICD) of Teff cells, and is detrimental to tolerance induction by costimulation blockade, whereas Rapamycin (RPM) preserves AICD, and augments the potential of costimulation blockade to create tolerance. While differences between CsA and RPM in influencing apoptosis of activated graft-destructive Teff cells are apparent, their effects on graft-protective Treg cells remain enigmatic. Moreover, it is unclear whether tolerizing regimens foster conversion of naïve peripheral T cells into alloantigen-specific Treg cells for graft protection. Here we show, using reporter mice for Treg marker Foxp3, that RPM promotes de novo conversion of alloantigen-specific Treg cells, whereas CsA completely inhibits this process. Upon transfer, in vivo converted Treg cells potently suppress the rejection of donor but not third party skin grafts. Thus, the differential effects of RPM and CsA on Teff and Treg cells favor the use of RPM in shifting the balance of aggressive to protective type alloimmunity.