Dendritic cells (DCs) in lymphoid tissue comprise conventional DCs (cDCs) and plasmacytoid DCs (pDCs) that develop from common DC progenitors (CDPs). CDPs are Flt3(+)c-kit(int)M-CSFR(+) and reside in bone marrow. In this study, we describe a two-step culture system that recapitulates DC development from c-kit(hi)Flt3(-/lo) multipotent progenitors (MPPs) into CDPs and further into cDC and pDC subsets. MPPs and CDPs are amplified in vitro with Flt3 ligand, stem cell factor, hyper-IL-6, and insulin-like growth factor-1. The four-factor mixture readily induces self-renewal of MPPs and their progression into CDPs and has no self-renewal activity on CDPs. The amplified CDPs respond to all known DC poietins and generate all lymphoid tissue DCs in vivo and in vitro. Additionally, in vitro CDPs recapitulate the cell surface marker and gene expression profile of in vivo CDPs and possess a DC-primed transcription profile. TGF-β1 impacts on CDPs and directs their differentiation toward cDCs. Genome-wide gene expression profiling of TGF-β1-induced genes identified instructive transcription factors for cDC subset specification, such as IFN regulatory factor-4 and RelB. TGF-β1 also induced the transcription factor inhibitor of differentiation/DNA binding 2 that suppresses pDC development. Thus, TGF-β1 directs CDP differentiation into cDCs by inducing both cDC instructive factors and pDC inhibitory factors.