Apoptotic cells induce immunosuppression through unknown mechanisms. To identify the underlying molecular mediators, we examined how apoptotic cells induce immunoregulation by dendritic cells (DC). We found that administration of DC exposed to apoptotic cells (DCap) strongly inhibited expansion of lymphocytes in draining lymph nodes (dLNs) in vivo and subsequent antigen‐specific activation of dLN lymphocytes ex vivo. Unexpectedly, DCap supported T cell activation to a similar extent as normal DC in vitro, leading to proliferation and IL‐2 production, except DCap did not support T cell production of IFNgamma. Surprisingly, when DCap were co‐cultured with normal DC, they completely lost their ability to support T cell activation, an effect reversed by anti‐IFNgamma or inhibitors of inducible nitric oxide synthase (iNOS). As expected, exposure to apoptotic cells rendered DCap capable of producing much more nitric oxide (NO) in response to exogenous IFNgamma than normal DC. Furthermore, DCap from iNOS−/− or IFNgammaR1−/− mice were not inhibitory. Therefore, the IFNgamma‐induced production of NO by apoptotic cell‐sensitized DC plays a key role in apoptotic cell‐mediated immunosuppression.