Bone marrow (BM) or hematopoietic stem cell (HSC) transplantation is used as curative therapy for hematological malignancies. Incorporation of gene-therapy to drive tolerogenic expression of antigens is a promising strategy to overcome the limited long-term efficacy of autologous HSC transplantation for autoimmune diseases. HSC engraftment and tolerance induction is readily achieved after myeloablative or immune-depleting conditioning regardless of the cellular compartment in which antigen is expressed. It is unclear whether the efficiency of engraftment and tolerance induction is influenced by targeting antigen to specific cellular compartments. This is particularly important when using clinically-feasible low-intensity conditioning aimed at preserving infectious immunity in individuals where immunological memory exists to the autoantigen to be expressed. Here we demonstrate that, under immune-preserving conditions, confining expression of a transgenically-expressed antigen to dendritic cells permits stable, long-term engraftment of genetically-modified BM even when recipients are immune to the expressed antigen. In contrast, broader expression within the hematopoietic compartment leads to graft rejection and therapeutic failure due to antigen expression in HSC. These findings are relevant to the clinical application of genetically-engineered HSC and provide evidence that careful selection of promoters for HSC-mediated gene therapy is important, particularly where tolerance is sought under immune-preserving conditions.