The upper airways are prone to contact with pathogenic as well as non-pathogenic microbes, therefore immune recognition principles have to be tightly controlled. Here we show that human BEAS-2B bronchial epithelial cells inhibited secretion of the pro-inflammatory cytokines TNF-α and IL-12 by monocytes, macrophages and dendritic cells. This inhibitory effect could be transferred by supernatant of resting BEAS-2B cells and was also observed when primary murine tracheal epithelial cells were prepared. In contrast to inhibition of pro-inflammatory cytokine secretion epithelial cell-conditioned dendritic cells showed increased expression of IL-10 and arginase-1, thus displaying properties of alternative activation. Accordingly, Toll-like receptor-mediated up-regulation of CD40, CD86 and PD-L2 (CD273) on murine dendritic cells was reduced in the presence of bronchial epithelial cell supernatant. However, expression of negative regulatory PD-L1 (CD274) was increased and dendritic cell induced proliferation of T lymphocytes was diminished. Epithelial cells also showed a direct inhibitory effect on T lymphocyte proliferation and this was due to the constitutive secretion of TGF-β by bronchial epithelial cells. Moreover, epithelial cell-conditioned T lymphocytes showed increased differentiation towards IL-10-producing Tr1 cells. The results indicate that bronchial epithelial cells induce a non-inflammatory microenvironment that regulates local immune homeostasis.