Hepatic stellate cells (HSCs) may play an important role in hepatic immune regulation by producing numerous cytokines/chemokines and expressing Ag-presenting and T cell coregulatory molecules. Due to disruption of the endothelial barrier during cold-ischemic storage and reperfusion of liver grafts, HSCs can interact directly with cells of the immune system. Endotoxin (LPS), levels of which increase in liver diseases and transplantation, stimulates the synthesis of many mediators by HSCs. We hypothesized that LPS-stimulated HSCs might promote hepatic tolerogenicity by influencing naturally occurring immunosuppressive CD4(+)CD25(+)Foxp3(+) regulatory T cells (Tregs). Following their portal venous infusion, allogeneic CD4(+) T cells, including Tregs, were found closely associated with HSCs, and this association increased in LPS-treated livers. In vitro, both unstimulated and LPS-stimulated HSCs upregulated Fas (CD95) expression on conventional CD4(+) T cells and induced their apoptosis in a Fas/Fas ligand-dependent manner. By contrast, HSCs induced Treg proliferation, which required cell-cell contact and was MHC class II-dependent. This effect was augmented when HSCs were pretreated with LPS. LPS increased the expression of MHC class II, CD80, and CD86 and stimulated the production of IL-1α, IL-1β, IL-6, IL-10 and TNF-α by HSCs. Interestingly, production of IL-1α, IL-1β, IL-6, and TNF-α was strongly inhibited, but that of IL-10 enhanced in LPS-pretreated HSC/Treg cocultures. Adoptively transferred allogeneic HSCs migrated to the secondary lymphoid tissues and induced Treg expansion in lymph nodes. These data implicate endotoxin-stimulated HSCs as important immune regulators in liver transplantation by inducing selective expansion of tolerance-promoting Tregs and reducing inflammation and alloimmunity.