Myeloid dendritic cells (DC) and macrophages play an important role in pathogen sensing and antimicrobial defense. In this study we provide evidence that myeloid DC respond to infection with Listeria monocytogenes with simultaneous induction of multiple stimulatory and inhibitory molecules. However, the overall impact of infected DC during T cell encounter results in suppression of T cell activation, indicating that inhibitory pathways functionally predominate. Inhibitory activity of infected DC is effected mainly by IL-10 and cyclooxygenase 2-mediated mechanisms, with soluble CD25 acting as an IL-2 scavenger as well as by the products of tryptophan catabolism. These inhibitory pathways are strictly TNF-dependent. In addition to direct infection, DC bearing this regulatory phenotype can be induced in vitro by a combination of signals including TNF, TLR2, and prostaglandin receptor ligation and by supernatants derived from the infected cells. Both infection-associated DC and other in vitro-induced regulatory DC are characterized by increased resistance to infection and enhanced bactericidal activity. Furthermore, myeloid DC expressing multiple regulatory molecules are identified in vivo in granuloma during listeriosis and tuberculosis. Based on the in vivo findings and the study of in vitro models, we propose that in granulomatous infections regulatory DC may possess dual function evolved to protect the host from disseminating infection via inhibition of granuloma destruction by T cells and control of pathogen spreading.