A network of dendritic cells (DC) can be detected in close proximity to the epithelial cells overlying Peyer's patches in the gut. Intestinal DC show distinct phenotypes as compared to DC from the systemic lymph nodes (relatively low MHC and costimulatory molecules and high IL-10 and TGFbeta) and may play a role in maintaining tolerance to enteric antigens. We show that a similar phenotype is induced in the presence of a polarised epithelial cell monolayer in vitro. Monocyte-derived DC were co-cultured with Caco-2 intestinal epithelial monolayers for 24 h. Co-culture resulted in DC with reduced expression of MHC class II, CD86, and CD80, and poor T cell stimulatory capacity. Cytokine profiles showed reduced levels of inflammatory cytokine production, and co-cultured DC were less sensitive to stimulation via Toll-like receptors (TLR2, 4, and 6) as a result of increased levels of autocrine TGFbeta production. However, phenotypic changes in co-cultured DC could not be blocked by removal of apoptotic cells or addition of anti-TGFbeta antibodies, suggesting that other soluble factors are involved in DC modulation. Thus, polarised epithelial cell monolayers create a 'tolerogenic' environment which modulates the activity of DC. These results highlight the regulatory importance of the epithelial microenvironment at mucosal surfaces.