Adaptive CD25(+)CD4(+) regulatory T cells (Treg) can be induced following exposure to alloantigen and may function alongside naturally occurring Treg to suppress allograft rejection when present in sufficient numbers. However, the location of the Treg as they function in vivo and the mechanisms used to control donor-reactive T cells remains ill-defined. In this study, we used a CD8(+) TCR transgenic model of skin allograft rejection to characterize in vivo activity of donor-reactive Treg cells during induction of transplantation tolerance. We demonstrate that, initially after skin transplantation, Treg attenuate the priming of donor-reactive naive CD8(+) T cells in the lymphoid tissue draining the graft site. However, with time, peripheral suppression is overcome despite the continued presence of Treg, resulting in the priming of donor-reactive CD8(+) T cells and graft infiltration by the resultant effector T cells and induction of a "Tc1-like" intragraft gene expression profile. These intragraft effector CD8(+) T cells are then prevented from eliciting rejection by Treg that simultaneously infiltrate the skin allografts, resulting in a failure to generate donor-reactive memory CD8(+) T cells. Overall, these data demonstrate for the first time that donor-reactive Treg can suppress allograft rejection using distinct mechanisms at different sites in vivo with the overall outcome of preventing the generation of donor-reactive memory T cells.