Although mechanisms leading to brain-specific inflammation and T cell activation have been widely investigated, regulatory mechanisms of local innate immune cells in the brain are only poorly understood. In this study, to our knowledge we show for the first time that MHC class II(+)CD40(dim)CD86(dim)IL-10(+) microglia are potent inducers of Ag-specific CD4(+)Foxp3(+) regulatory T cells (Tregs) in vitro. Microglia differentially regulated MHC class II expression, costimulatory molecules, and IL-10 depending on the amount of IFN-γ challenge and Ag dose, promoting either effector T cell or Treg induction. Microglia-induced Tregs were functionally active in vitro by inhibiting Ag-specific proliferation of effector T cells, and in vivo by attenuating experimental autoimmune encephalomyelitis disease course after adoptive transfer. These results indicate that MHC class II(+)CD40(dim)CD86(dim)IL-10(+) microglia have regulatory properties potentially influencing local immune responses in the CNS.