T-cell anergy may serve to limit autoreactive T-cell responses in vivo. Anergy induction in vitro is blocked by calcineurin inhibitors and by inhibition of protein synthesis. In order to look for a potential anergy specific gene, we examined early changes in gene expression in murine CD4+ T-cell clones after antigen-T-cell receptor signaling in the presence (activation) or absence (anergy) of B7 co-stimulation. GRAIL (Gene Related to Anergy in Lymphocytes) was a novel transcript whose expression was markedly induced in anergic T cells in vitro compared with activated or resting T cells. GRAIL is a novel murine type I transmembrane protein that localizes to the endocytic pathway and bears homology to several RING Zinc-finger proteins. GRAIL functions as an E3 ubiquitin ligase. Expression of GRAIL in retrovirally transduced T-cell hybridomas dramatically limits activation-induced IL-2 production in vitro. Substitution of histidine for asparagine at two positions in the ring finger (H2N2 GRAIL) blocks enzymatic function of GRAIL. Retroviral transduction of hematopoietic stem cells to express GRAIL reiterates the anergy phenotype in resultant CD4+ T cells, including inability to secrete IL-2 or proliferate following antigen stimulation. Expression of the enzymatically inactive (dominant-negative) form of H2N2 GRAIL blocks anergy induction in T cells in vivo. These data demonstrate that GRAIL is necessary and sufficient to induce anergy in CD4+ T cells.