Dendritic cells (DCs) are specialized immune sentinels that play key role in maintaining immune homeostasis by efficiently regulating the delicate balance between protective immunity and tolerance to self. Although DCs respond to maturation signals present in the surrounding milieu, multiple layers of suppression also co-exist that reduce the infringement of tolerance against self-antigens. These tolerance inducing properties of DCs are governed by their origin and a range of other factors including distribution, cytokines, growth factors, and transcriptional programing, that collectively impart suppressive functions to these cells. DCs directing tolerance secrete anti-inflammatory cytokines and induce naïve T cells or B cells to differentiate into regulatory T cells (Tregs) or B cells. In this review, we provide a detailed outlook on the molecular mechanisms that induce functional specialization to govern central or peripheral tolerance. The tolerance-inducing nature of DCs can be exploited to overcome autoimmunity and rejection in graft transplantation.