Glucocorticoids (GCs) exert powerful anti-inflammatory effects that may relate in part to their ability to restrict the differentiation and function of dendritic cells (DCs). Although these inhibitory effects are dependent upon GCs binding to nuclear glucocorticoid receptors (GRs), fine-tuning of GR signaling is achieved by prereceptor interconversion of cortisol that binds GRs with high affinity and cortisone that does not. We show for the first time that human monocyte-derived DCs are able to generate cortisol as a consequence of up-regulated expression of the enzyme 11beta-hydroxysteroid dehydrogenase type 1 (11beta-HSD1). Immature DCs demonstrate selective enhancement of 11beta-HSD1 reductase activity, leading to increased conversion of inactive cortisone to active cortisol. Enhancement of GC bioavailability is maintained or increased upon terminal differentiation induced by signals associated with innate immune activation. In marked contrast, maturation induced by CD40 ligation leads to a sharp reduction in cortisol generation by DCs. The differentiation of DCs from monocyte precursors is inhibited at physiologic concentrations of inactive cortisone, an effect that requires activity of the 11beta-HSD1 enzyme. In conclusion, prereceptor regulation of endogenous GCs appears to be an important determinant of DC function and represents a potential target for therapeutic manipulation.