We showed previously that nonmyeloablative total lymphoid irradiation/rabbit anti-thymocyte serum (TLI/ATS) conditioning facilitates potent donor-recipient immune tolerance following bone marrow transplantation (BMT) across MHC barriers via recipient invariant NKT (iNKT) cell-derived IL-4-dependent expansion of donor Foxp3(+) naturally occurring regulatory T cells (nTregs). In this study, we report a more specific mechanism. Wild-type (WT) BALB/c (H-2(d)) hosts were administered TLI/ATS and BMT from WT or STAT6(-/-) C57BL/6 (H-2(b)) donors. Following STAT6(-/-) BMT, donor nTregs demonstrated no loss of proliferation in vivo, indicating that an IL-4-responsive population in the recipient, rather than the donor, drives donor nTreg proliferation. In graft-versus-host disease (GVHD) target organs, three recipient CD11b(+) cell subsets (Gr-1(high)CD11c(-), Gr-1(int)CD11c(-), and Gr-1(low)CD11c(+)) were enriched early after TLI/ATS + BMT versus total body irradiation/ATS + BMT. Gr-1(low)CD11c(+) cells induced potent H-2K(b+)CD4(+)Foxp3(+) nTreg proliferation in vitro in 72-h MLRs. Gr-1(low)CD11c(+) cells were reduced significantly in STAT6(-/-) and iNKT cell-deficient Jα18(-/-) BALB/c recipients after TLI/ATS + BMT. Depletion of CD11b(+) cells resulted in severe acute GVHD, and adoptive transfer of WT Gr-1(low)CD11c(+) cells to Jα18(-/-) BALB/c recipients of TLI/ATS + BMT restored day-6 donor Foxp3(+) nTreg proliferation and protection from CD8 effector T cell-mediated GVHD. Blockade of programmed death ligand 1 and 2, but not CD40, TGF-β signaling, arginase 1, or iNOS, inhibited nTreg proliferation in cocultures of recipient-derived Gr-1(low)CD11c(+) cells with donor nTregs. Through iNKT-dependent Th2 polarization, myeloid-derived immunomodulatory dendritic cells are expanded after nonmyeloablative TLI/ATS conditioning and allogeneic BMT, induce PD-1 ligand-dependent donor nTreg proliferation, and maintain potent graft-versus-host immune tolerance.