Vasoactive intestinal polypeptide (VIP), an anti-inflammatory neuropeptide with pleiotropic cardiovascular effects, induces differentiation of hematopoietic stem cells into regulatory dendritic cells that limit graft-versus-host disease (GVHD) in allogeneic hematopoietic stem cell transplant (HSCT) recipients. We have previously shown that donor plasmacytoid dendritic cells (pDCs) in bone marrow (BM) donor grafts limit the pathogenesis of GVHD. In this current study we show that murine and human pDCs express VIP, and that VIP-expressing pDCs limit T-cell activation and expansion using both in vivo and in vitro model systems. Using T cells or pDCs from transgenic luciferase+ donors in murine bone marrow transplantation (BMT), we show similar homing patterns of donor pDCs and T cells to the major sites for alloactivation of donor T cells: spleen and gut. Cotransplanting VIP-knockout (KO) pDCs with hematopoietic stem cells and T cells in major histocompatibility complex mismatched allogeneic BMT led to lower survival, higher GVHD scores, and more colon crypt cell apoptosis than transplanting wild-type pDCs. BMT recipients of VIP-KO pDCs had more T helper 1 polarized T cells, and higher plasma levels of granulocyte-macrophage colony-stimulating factor and tumor necrosis factor-α than recipients of wild-type pDCs. T cells from VIP-KO pDC recipients had increasing levels of bhlhe40 transcripts during the first 2 weeks posttransplant, and higher levels of CyclophilinA/Ppia transcripts at day 15 compared with T cells from recipients of wild-type pDCs. Collectively, these data indicate paracrine VIP synthesis by donor pDCs limits pathogenic T-cell inflammation, supporting a novel mechanism by which donor immune cells regulate T-cell activation and GVHD in allogeneic BMT.