Recently, regulatory dendritic cells (DCregs), a newly described dendritic cell subset with potent immunomodulatory function, have attracted increased attention for their utility in treating immune response-related diseases, such as graft-versus-host disease, hypersensitivity, and autoimmune diseases. Danchaiheji (DCHJ) is a traditional Chinese formula that has been used for many years in the clinic. However, whether DCHJ can program dendritic cells towards a regulatory phenotype and the underlying mechanism behind this process remain unknown. Herein, we investigate the effects of traditional Chinese DCHJ on DCregs differentiation and a mouse model of skin transplantation. The current study demonstrates that DCHJ can induce dendritic cells to differentiate into DCregs, which are represented by high CD11b and low CD86 and HLA-DR expression as well as the secretion of IL-10 and TGF-β. In addition, DCHJ inhibited DC migration and T cell proliferation, which correlated with increased IDO expression. Furthermore, DCHJ significantly prolonged skin graft survival time in a mouse model of skin transplantation without any liver or kidney toxicity. The traditional Chinese formula DCHJ has the potential to be a potent immunosuppressive agent with high efficiency and nontoxicity.