The role of Ag presenting cell subsets in graft-versus-host disease (GVHD) remains unclear. We have thus examined the ability of plasmacytoid dendritic cells (pDC) to modulate transplant outcome. Surprisingly, host pDC were exquisitely sensitive to total body irradiation and were depleted before transplantation, thus allowing us to focus on donor pDC [corrected]. The depletion of all pDC from bone marrow grafts resulted in an acceleration of GVHD mortality while the depletion of mature pDC from G-CSF mobilized splenic grafts had no effect. Thus, donor bone marrow pDC, but not mature pDC contained within stem cell grafts attenuate acute GVHD. In the presence of GVHD, donor pDC completely failed to reconstitute although a CD11clow120G8+ precursor DC reconstituted in an exaggerated and transient manner. These cells expressed Flt-3, the macrophage colony stimulating factor receptor and, consistent with a common dendritic cell (DC) precursor, were capable of differentiation into pDC and conventional DC in vivo in the absence of GVHD. These precursors were MHC class II+ and CD80/86+ but lacked CD40, were actively presenting host Ag and inhibited GVHD and T cell proliferation in a contact-dependent fashion. These data demonstrate that GVHD prevents the maturation of pDC and instead promotes the generation of a suppressive precursor DC, further contributing to the state of immune paralysis after transplantation.