Regulatory dendritic cells (DCs) have been reported recently, but their origin is poorly understood. Our previous study demonstrated that splenic stroma can drive mature DCs to proliferate and differentiate into regulatory DCs, and their natural counterpart with similar regulatory function in normal spleens has been identified. Considering that the spleen microenvironment supports hematopoiesis and that hematopoietic stem cells (HSCs) are found in spleens of adult mice, we wondered whether splenic microenvironment could differentiate HSCs into regulatory DCs. In this report, we demonstrate that endothelial splenic stroma induce HSCs to differentiate into a distinct regulatory DC subset with high expression of CD11b but low expression of Ia. CD11b(hi)Ia(lo) DCs secreting high levels of TGF-beta, IL-10, and NO can suppress T-cell proliferation both in vitro and in vivo. Furthermore, CD11b(hi)Ia(lo) DCs have the ability to potently suppress allo-DTH in vivo, indicating their preventive or therapeutic perspectives for some immunologic disorders. The inhibitory function of CD11b(hi)Ia(lo) DCs is mediated through NO but not through induction of regulatory T (Treg) cells or T-cell anergy. IL-10, which is secreted by endothelial splenic stroma, plays a critical role in the differentiation of the regulatory CD11b(hi)Ia(lo) DCs from HSCs. These results suggest that splenic microenvironment may physiologically induce regulatory DC differentiation in situ.