Self versus non-self discrimination is a central theme in biology from plants to vertebrates, and is particularly relevant for lymphocytes that express receptors capable of recognizing self-tissues and foreign invaders. Comprising the third largest lymphocyte population, natural killer (NK) cells recognize and kill cellular targets and produce pro-inflammatory cytokines. These potentially self-destructive effector functions can be controlled by inhibitory receptors for the polymorphic major histocompatibility complex (MHC) class I molecules that are ubiquitously expressed on target cells. However, inhibitory receptors are not uniformly expressed on NK cells, and are germline-encoded by a set of polymorphic genes that segregate independently from MHC genes. Therefore, how NK-cell self-tolerance arises in vivo is poorly understood. Here we demonstrate that NK cells acquire functional competence through 'licensing' by self-MHC molecules. Licensing involves a positive role for MHC-specific inhibitory receptors and requires the cytoplasmic inhibitory motif originally identified in effector responses. This process results in two types of self-tolerant NK cells--licensed or unlicensed--and may provide new insights for exploiting NK cells in immunotherapy. This self-tolerance mechanism may be more broadly applicable within the vertebrate immune system because related germline-encoded inhibitory receptors are widely expressed on other immune cells.