The granuloma, a hallmark of host defense against pulmonary mycobacterial infection, has long been believed to be an active type 1 immune environment. However, the mechanisms regarding why granuloma fails to eliminate mycobacteria even in immune-competent hosts, have remained largely unclear. By using a model of pulmonary Mycobacterium bovis Bacillus Calmette-Guerin (BCG) infection, we have addressed this issue by comparing the immune responses within the airway luminal and granuloma compartments. We found that despite having a similar immune cellular profile to that in the airway lumen, the granuloma displayed severely suppressed type 1 immune cytokine but enhanced chemokine responses. Both antigen-presenting cells (APCs) and T cells in granuloma produced fewer type 1 immune molecules including tumor necrosis factor-α (TNF-α), interferon-γ (IFN-γ), and nitric oxide. As a result, the granuloma APCs developed a reduced capacity to phagocytose mycobacteria and to induce T-cell proliferation. To examine the molecular mechanisms, we compared the levels of immune suppressive cytokine IL-10 in the airway lumen and granuloma and found that both granuloma APCs and T cells produced much more IL-10. Thus, IL-10 deficiency restored type 1 immune activation within the granuloma while having a minimal effect within the airway lumen. Hence, our study provides the first experimental evidence that, contrary to the conventional belief, the BCG-induced lung granuloma represents a symbiotic host-microbe microenvironment characterized by suppressed type 1 immune activation.