At the first constitution of their government, Utopus having understood that before his coming among them the old inhabitants had been engaged in great quarrels concerning religion, by which they were so divided among themselves, that he found it an easy thing to conquer them, since, instead of uniting their forces against him, every different party in religion fought by themselves. After he had subdued them he made a law that every man might be of what religion he pleased, and might endeavour to draw others to it by the force of argument and by amicable and modest ways, but without bitterness against those of other opinions; but that he ought to use no other force but that of persuasion, and was neither to mix with it reproaches nor violence; and such as did otherwise were to be condemned to banishment or slavery. “This law was made by Utopus, not only for preserving the public peace, which he saw suffered much by daily contentions and irreconcilable heats, but because he thought the interest of religion itself required it. He judged it not fit to determine anything rashly; and seemed to doubt whether those different forms of religion might not all come from God, who might inspire man in a different manner, and be pleased with this variety; he therefore thought it indecent and foolish for any man to threaten and terrify another to make him believe what did not appear to him to be true. And supposing that only one religion was really true, and the rest false, he imagined that the native force of truth would at last break forth and shine bright, if supported only by the strength of argument, and attended to with a gentle and unprejudiced mind; while, on the other hand, if such debates were carried on with violence and tumults, as the most wicked are always the most obstinate, so the best and most holy religion might be choked with superstition, as corn is with briars and thorns; he therefore left men wholly to their liberty, that they might be free to believe as they should see cause; only he made a solemn and severe law against such as should so far degenerate from the dignity of human nature, as to think that our souls died with our bodies, or that the world was governed by chance, without a wise overruling Providence: for they all formerly believed that there was a state of rewards and punishments to the good and bad after this life; and they now look on those that think otherwise as scarce fit to be counted men, since they degrade so noble a being as the soul, and reckon it no better than a beast’s: thus they are far from looking on such men as fit for human society, or to be citizens of a well-ordered commonwealth; since a man of such principles must needs, as oft as he dares do it, despise all their laws and customs: for there is no doubt to be made, that a man who is afraid of nothing but the law, and apprehends nothing after death, will not scruple to break through all the laws of his country, either by fraud or force, when by this means he may satisfy his appetites. They never raise any that hold these maxims, either to honours or offices, nor employ them in any public trust, but despise them, as men of base and sordid minds. Yet they do not punish them, because they lay this down as a maxim, that a man cannot make himself believe anything he pleases; nor do they drive any to dissemble their thoughts by threatenings, so that men are not tempted to lie or disguise their opinions; which being a sort of fraud, is abhorred by the Utopians: they take care indeed to prevent their disputing in defence of these opinions, especially before the common people: but they suffer, and even encourage them to dispute concerning them in private with their priest, and other grave men, being confident that they will be cured of those mad opinions by having reason laid before them.--Thomas More Utopia.
The proper regulation of religion plays a central role in Utopia (recall also here). First, it is recognized that religion can undermine even minimal political unity. So, religion is regulated in such a way that it prevents disunity and promotes unity. This has three key features: (i) there is -- anticipating Hobbes and Spinoza -- complete freedom of thought; (ii) anticipating Spinoza, there is complete freedom of public expressions of religious doctrines (with one exception to be noted below) as long as the manner of expression is civil--religion as a source of public disorder is (anticipating Spinoza) treated severely [for more on Utopia's proto-Spinozism see here and, also, here]; (iii) only Epicurean religious doctrines ("our souls died with our bodies, or that the world was governed by chance, without a wise overruling Providence") are disallowed--the thought being that such doctrines undermine adherence to the law and public norms. To put the significance of (iii) paradoxically: the Utopians agree with Hobbes (or the other way around) that the stability and survival of the law is based on existence of fear in the population at large, but this fear requires religious doctrines for their support. So, the Utopians deny that a (virtuous) society of atheists is possible. That is to say, religion has a political role in securing obedience and, thereby, minimal unity. The previous sentence is important because it calls attention to the significant role of religious institutions of reproducing and stabilizing the morals of Utopia.
Second, a very modern notion of progress is inscribed into the nature of religious toleration as practiced on Utopia: if permanent religious discussion is promoted among those that have the right dispositions then there will be an open ended discovery process about the nature of religion.
Third, by promoting public religious toleration, Utopus is serving the interests of religion because it removes one of the key sources of corruption of religion: the attachment of any religious faction to the trappings of political power. (This is especially clear from Part I of Utopia.) This is reinforced by the fact that the priestly class is chosen by secret ballot by the population (in fact, the electorate is organized around fairly homogeneous districts that get to know the character of would-be-priest quite well due to the near lack of privacy on Utopia).
There are two peculiarities worth noting about this system: first (A), foolish would-be-Epicureans, that is, those that insist on their doctrines in public are punished severely (with loss of public honors), but prudent Epicureans are tolerated and even encouraged to discuss (there are heavy hints of Plato's Laws here) their views behind closed door with the educated elite (priest, politicians, and learned) on Utopia. So, while Epicureans is a public taboo it is privately explored.This is notable because Utopia is not a society that has much space for any other privacy.
Second (B), the Utopians publically think their polity is governed by providence and guided by the wisdom of their founder, King Utopus, we are never told the political source or legislator of the key feature of its regime: the lack of private property. (This is explicitly not attributed to Utopus' wisdom.) And, in fact, at the close of the narrative we are told by Raphael Hythloday (the visitor) that there is an element of chance in the generation of Utopia's institutions: "I am glad that the Utopians have fallen upon this form of government" [Utopiensibus saltem contigisse gaudeo]. So, before I speculate on what this may signify about Utopia's political institutions. It is worth noting that the religious public taboo against the role of chance in natural (and political) history, also prevents the Utopians from fully grasping the nature of their own political order. (It turns out that, in fact, the study of political philosophy about abstract human nature is not available in Utopia.)*
In fact, while King Utopus founded and designed the capital (which is the model for the other cities on Utopia, but there is no reason to believe Utopus was around to found this), "he left all that belonged to the ornament and improvement of it to be added by those that should come after him, that being too much for one man to bring to perfection." This is a further notion of open-ended progress that is inscribed into Utopia: of material improvement (from very poor structures to wealthy structures).
Evidently something happened along the way to turn Utopia from a state that at its founding is explicitly multi-ethnic and religiously tolerant into one without property. It strikes me there are three options: first, communism was introduced as an unintended consequence of other original institutions; second, there was, in fact, a further political revolution between Utopus and the present; third, a Christlike figure preaching Communism had visited Utopia at some point. There are hints of all three options in the text.
*In fact, More's Utopia, which in its two parts offers a comparative study of different institutional designs, is not really possible on Utopia.