Allograft vascular dysfunction predisposes to arteriosclerosis and graft loss. We examined how dysfunction develops in transplanted human arteries in response to circulating allogeneic T cells in vivo using immunodeficient murine hosts. Within 7–9 days, transplanted arteries developed endothelial cell (EC) dysfunction but remained sensitive to exogenous NO. By 2 weeks, the grafts developed impaired contractility and desensitization to NO, both signs of VSMC dysfunction. These T cell–dependent changes correlated with loss of eNOS and expression of iNOS — the latter predominantly within infiltrating T cells. Neutralizing IFN-γ completely prevented both vascular dysfunction and changes in NOS expression; neutralizing TNF reduced IFN-γ production and partially prevented dysfunction. Inhibiting iNOS partially preserved responses to NO at 2 weeks and reduced graft intimal expansion after 4 weeks in vivo. In vitro, memory CD4⁺ T cells acted on allogeneic cultured ECs to reduce eNOS activity and expression of protein and mRNA. These effects required T cell activation by class II MHC antigens and costimulators (principally lymphocyte function-associated antigen–3, or LFA-3) on the ECs and were mediated by production of soluble mediators including IFN-γ and TNF. We conclude that IFN-γ is a central mediator of vascular dysfunction and, through dysregulation of NOS expression, links early dysfunction with late arteriosclerosis.