Interferon (IFN)-γ is a cytokine with immunomodulatory properties, which has been shown previously to enhance the generation of tolerogenic dendritic cells (DC) when administered early ex vivo in 7-day monocyte-derived DC culture. To generate tolerogenic DC rapidly within 48 h, human monocytes were cultured for 24 h with interleukin (IL)-4 and granulocyte–macrophage colony-stimulating factor (GM-CSF) in the presence (IFN-γ-DC) or absence of IFN-γ (500 U/ml) (UT-DC). DC were matured for 24 h with TNF-α and prostaglandin E2 (PGE2). DC phenotype, signal transducer and activator of transcription-6 (STAT-6) phosphorylation and promotion of CD4+CD25+CD127neg/lowforkhead box P3 (FoxP3)hi T cells were analysed by flow cytometry. DC nuclear factor (NF)-κB transcription factor reticuloendotheliosis viral oncogene homologue B (RELB) and IL-12p70 protein expression were also determined. Phenotypically, IFN-γ-DC displayed reduced DC maturation marker CD83 by 62% and co-stimulation molecules CD80 (26%) and CD86 (8%). IFN-γ treatment of monocytes inhibited intracellular STAT6, RELB nuclear translocation and IL-12p70 production. IFN-γ-DC increased the proportion of CD4+CD25+CD127neg/lowfoxp3hi T cells compared to UT-DC from 12 to 23%. IFN-γ-DC primed T cells inhibited antigen-specific, autologous naive T cell proliferation by 70% at a 1:1 naive T cells to IFN-γ-DC primed T cell ratio in suppression assays. In addition, we examined the reported paradoxical proinflammatory effects of IFN-γ and confirmed in this system that late IFN-γ exposure does not inhibit DC maturation marker expression. Early IFN-γ exposure is critical in promoting the generation of regulatory DC. Early IFN-γ modulated DC generated in 48 h are maturation arrested and promote the generation of antigen-specific regulatory T cells, which may be clinically applicable as a novel cellular therapy for allograft rejection.