Immature dendritic cells (DCs) induce tolerance and mature DCs induce inflammatory immune responses. However, the likelihood of maturation of immature DCs in vivo limits its potential application for suppression of unwanted immune reactions in vivo. The aim of this study was to generate DCs with anti-inflammatory properties in both the immature and mature states. GM-CSF combined with IL-4 drives monocyte differentiation into DCs. As M-CSF is a critical cytokine in development of the monocytic lineage and its level is dramatically elevated in immunosuppressive conditions, we investigated whether M-CSF could replace GM-CSF and generate DCs with distinct functions from umbilical cord blood monocytes. Highly purified umbilical cord blood monocytes cultured with M-CSF and IL-4, in a GM-CSF-independent fashion, differentiated into IL-10highIL-12absent cells with a DC phenotype (termed M-DC). Single time stimulation with immature DCs (both M-DCs and DCs) derived from cord blood induced hyporesponsive and regulatory CD4+ T cells. In contrast to mature DCs, mature M-DCs induced decreased Th1 differentiation and proliferation of naive CD4+ T cells in both primary and secondary allogeneic MLR and showed tolerogenic potential. These results demonstrate an unrecognized role for M-CSF in alternative differentiation of monocytes into anti-inflammatory M-DCs and suggest that M-CSF-induced DCs may be of use for suppressing unwanted immune responses.