Cetraria islandica (Iceland moss) has been used for centuries in folk medicine in many countries against a number of conditions, including inflammatory conditions, mainly as an aqueous extract. C. islandica contains many compounds, such as polysaccharides and secondary metabolites, some of which have established biological activity. However, very little is known about their effect on the immune system. Human monocyte-derived immature dendritic cells were cultured with an aqueous extract from C. islandica quantified with regard to the polysaccharides lichenan and isolichenan and secondary metabolites protolichesterinic and fumarprotocetraric acids. The purified compounds were also tested individually. Their effect on the maturation of the dendritic cells was assessed by measuring secretion of IL-10 and IL-12p40 and expression of surface molecules. In addition, the effect of the aqueous extract on antigen-induced arthritis in rats was investigated. The aqueous extract caused upregulated secretion of both IL-10 and IL-12p40, with IL-10 secretion being more prominent. Lichenan had similar effects, whereas isolichenan and the secondary metabolites were inactive, suggesting that the effect observed by the aqueous extract was mainly mediated by lichenan. Significantly less arthritis was observed for rats treated by the aqueous extract, administered subcutaneously, compared with rats treated with saline alone. These results suggest that the aqueous extract of C. islandica has anti-inflammatory effect, possibly by changing the cytokine secretion bias from IL-12p40 towards IL-10.