During gestation the developing human fetus is exposed to a diverse range of potentially immune-stimulatory molecules including semi-allogeneic antigens from maternal cells(1,2), substances from ingested amniotic fluid(3,4), food antigens(5), and microbes(6). Yet the capacity of the fetal immune system, including antigen-presenting cells, to detect and respond to such stimuli remains unclear. In particular, dendritic cells, which are crucial for effective immunity and tolerance, remain poorly characterized in the developing fetus. Here we show that subsets of antigen-presenting cells can be identified in fetal tissues and are related to adult populations of antigen-presenting cells. Similar to adult dendritic cells, fetal dendritic cells migrate to lymph nodes and respond to toll-like receptor ligation; however, they differ markedly in their response to allogeneic antigens, strongly promoting regulatory T-cell induction and inhibiting T-cell tumour-necrosis factor-a production through arginase-2 activity. Our results reveal a previously unappreciated role of dendritic cells within the developing fetus and indicate that they mediate homeostatic immune-suppressive responses during gestation.