We investigated the role of two key immunoregulatory molecules, indoleamine dioxygenase (IDO) and inducible costimulator ligand (ICOSL), in determining the function of bone marrow (BM)-derived plasmacytoid (p)DC, which offer the potential for therapy of allograft rejection. pDC generated from BM of wild-type (WT) or IDO knockout (KO) C57BL/6 mice were used to stimulate T-cell proliferation and interferon-γ (IFN-γ) production in response to alloantigen (alloAg) via the direct or indirect pathways. In some experiments, pDC were first activated by exposure to CpG ± CTLA4Ig for IDO induction via B7 ligation. Although IDO KO pDC induced enhanced T-cell responses compared with WT pDC, the use of the IDO inhibitor 1-methyltryptophan (1-MT) demonstrated that the inferior stimulatory capacity of WT pDC was not caused by the production of functional IDO, even under IDO-inducing conditions. The DNAX-activating protein of 12 kDa (DAP12), which inhibits functional IDO expression, was expressed in BM-pDC. DAP12 silencing increased the T-cell stimulatory capacity of WT pDC, but only in the presence of 1-MT. Compared with WT pDC, activated IDO KO DC expressed much lower levels of ICOSL. Moreover, when ICOSL was blocked on WT pDC, T-cell proliferation resembled that induced by IDO KO pDC, and interleukin (IL)-10 secretion in MLR was markedly decreased. These findings implicate ICOSL-induced IL-10, but not IDO in the regulation of BM-derived pDC function.