We have reported that mouse embryonic stem cells (mESCs) can be selectively induced in vitro to differentiate into thymic epithelial cell progenitors (TEPs). When placed in vivo, these mESC-derived TEPs differentiate into cortical and medullary thymic epithelial cells, reconstitute the normal thymic architecture, and enhance thymocyte regeneration after syngeneic BM transplantation (BMT). Here, we show that transplantation of mESC-derived TEPs results in the efficient establishment of thymocyte chimerism and subsequent generation of naive T cells in both young and old recipients of allo-geneic BM transplant. GVHD was not induced, whereas graft-versus-tumor activity was significantly enhanced. Importantly, the reconstituted immune system was tolerant to host, mESC, and BM transplant donor antigens. Therefore, ESC-derived TEPs may offer a new approach for the rapid and durable correction of T-cell immune deficiency after BMT, and the induction of tolerance to ESC-derived tissue and organ transplants. In addition, ESC-derived TEPs may also have use as a means to reverse age-dependent thymic involution, thereby enhancing immune function and decreasing infection rates in the elderly.