Dendritic cell (DC) modification is a potential strategy to induce clinical transplantation tolerance. We compared two DC modification strategies to inhibit allogeneic T-cell proliferation. In the first strategy, murine DCs were transduced with a lentiviral vector expressing CTLA4-KDEL, a fusion protein that prevents surface CD80/86 expression by retaining the co-stimulatory molecules within the ER. In the second approach, DCs were transduced to express the tryptophan-catabolising enzyme IDO. CTLA4-KDEL-expressing DCs induced anergy in alloreactive T cells and generated both CD4(+) CD25(+) and CD4(+) CD25(-) Treg cells (with direct and indirect donor allospecificity and capacity for linked suppression) both in vitro and in vivo. In contrast, T-cell unresponsiveness induced by IDO(+) DCs lacked donor specificity. In the absence of any immunosuppressive treatment, i.v. administration of CTLA4-KDEL-expressing DCs resulted in long-term survival of corneal allografts only when the DCs were capable of indirect presentation of alloantigen. This study demonstrates the therapeutic potential of CTLA4-KDEL-expressing DCs in tolerance induction.