Significance Smad7 is a negative regulator of TGF-β signaling, a cytokine with anti-inflammatory properties. Although TGF-β was implicated in the development and function of dendritic cells (DCs), the in vivo role of Smad7 in DCs remains elusive. Here, we demonstrate that DC-specific Smad7 deletion affects the development of splenic CD8 ⁺ CD103 ⁺ DCs by regulating expression of the transcription factors Batf3 and IRF8. In addition, Smad7 directs DC function by regulating the expression of indoleamine 2,3-dioxygenase in response to IFN-γ signaling. Hence, absent Smad7 in DCs mediates resistance of mice to the development of autoimmunity via protective regulatory T-cell induction. These findings demonstrate that Smad7 expression governs splenic DC subset differentiation and affects tolerogenic DC function in vivo.