Tumors can induce generation and accumulation of the immunosuppressive cells such as regulatory T cells in the tumor microenvironment, contributing to tumor escape from immunological attack. Although dendritic cell (DC)-based cancer vaccine can initiate antitumor immune response, regulatory DC subsets involved in the tolerance induction attracted much attention recently. Our previous studies demonstrate that the stromal microenvironment of the spleen, lung, and liver can program generation of CD11c(low)CD11b(high)Ia(low) DCs with regulatory function (CD11b(high)Ia(low) regulatory DCs). However, whether and how the tumor microenvironment can program generation of CD11b(high)Ia(low) regulatory DCs remain to be investigated. In this study, we used the freshly isolated tumor cells to mimic tumor microenvironment to coculture DCs and found that the freshly isolated tumor cells could drive DCs to differentiate into regulatory DCs with a CD11c(low)CD11b(high)Ia(low) phenotype and high expression of IL-10, NO, vascular endothelial growth factor, and arginase I. Tumor-educated CD11b(high)Ia(low) regulatory DCs inhibited CD4(+) T cell proliferation both in vitro and in vivo. 3LL lung cancer-derived TGF-beta and PGE(2) were responsible for the generation of regulatory DCs. PGE(2) was the main inducer of arginase I in regulatory DCs. Arginase I played a major role in the suppression of T cell response by regulatory DCs induced by 3LL lung cancer. A natural counterpart of CD11b(high)Ia(low) DCs was identified in tumor tissue, and CD11b(high)Ia(low) DCs sorted from 3LL lung cancer tissue expressed arginase I and inhibited T cell response. Therefore, tumors can educate DCs to differentiate into a regulatory DC subset, which contributes to constitution of the immunosuppressive tumor microenvironment and promotes tumor immune escape.