Dendritic cells (DCs) play a critical role in both initiating immune responses and in maintaining peripheral tolerance. However, the exact mechanism by which DCs instruct/influence the generation of effector vs regulatory T cells is not clear. In this study, we present evidence that TGF-beta, an important immunoregulatory molecule, is present on the surface of ex vivo immature human DCs bound by latency-associated peptide (LAP). Maturation of DCs upon stimulation with LPS results in loss of membrane-bound LAP and up-regulation of HLA class II and costimulatory molecules. The presence of LAP on immature DCs selectively inhibits Th1 cell but not Th17 cell differentiation and is required for differentiation and/or survival of Foxp3-positive regulatory T cells. Taken together, our results indicate that surface expression of TGF-beta on DCs in association with LAP is one of the mechanisms by which immature DCs limit T cell activation and thus prevent autoimmune responses.