Embryonic stem cells (ESCs) are an attractive source for tissue regeneration and repair therapies because they can be differentiated into virtually any cell type in the adult body. However, for this approach to succeed, the transplanted ESCs must survive long enough to generate a therapeutic benefit. A major obstacle facing the engraftment of ESCs is transplant rejection by the immune system. Here we show that blocking leukocyte costimulatory molecules permits ESC engraftment. We demonstrate the success of this immunosuppressive therapy for mouse ESCs, human ESCs, mouse induced pluripotent stem cells (iPSCs), human induced pluripotent stem cells, and more differentiated ESC/(iPSCs) derivatives. Additionally, we provide evidence describing the mechanism by which inhibition of costimulatory molecules suppresses T cell activation. This report describes a short-term immunosuppressive approach capable of inducing engraftment of transplanted ESCs and iPSCs, providing a significant improvement in our mechanistic understanding of the critical role costimulatory molecules play in leukocyte activation.