Posttransplant cyclophosphamide (PTCy) is associated with a low incidence of chronic graft-versus-host disease (cGVHD) following hematopoietic stem cell (HSC) transplantation. Previous studies have shown the important roles of B cell immunity in cGVHD development. Here, we investigated the long-term reconstitution of B lymphopoiesis after PTCy using murine models. We first demonstrated that the immune homeostatic abnormality leading to cGVHD is characterized by an initial increase in effector T cells in the bone marrow and subsequent B and Treg cytopenia. PTCy, but not cyclosporine A or rapamycin, inhibits the initial alloreactive T cell response, which restores intra-bone marrow B lymphogenesis with a concomitant vigorous increase in Tregs. This leads to profound changes in posttransplant B cell homeostasis, including decreased B cell activating factors, increased transitional and regulatory B cells, and decreased germinal center B cells. To identify the cells responsible for PTCy-induced B cell tolerance, we selectively depleted Treg populations that were graft or HSC derived using DEREG mice. Deletion of either Treg population without PTCy resulted in critical B cytopenia. PTCy rescued B lymphopoiesis from graft-derived Treg deletion. In contrast, the negative effect of HSC-derived Treg deletion could not be overcome by PTCy, indicating that HSC-derived Tregs are essential for maintaining favorable B lymphopoiesis following PTCy. These findings define the mechanisms by which PTCy restores homeostasis of the B cell lineage and reestablishes immune tolerance.