CD83 is commonly known as a specific marker for mature dendritic cells. It has been shown to be important for CD4⁺ T-cell development in the thymus. However, its function in the peripheral immune system remains enigmatic. Here, we show that CD83 inhibits proliferation and production of IL-2 and IFN-γ by T cells, and the inhibitory effect of CD83 is mediated by monocytes. Prostaglandin E2 (PGE₂), but not IL-10 or TGF-β, was up-regulated specifically by CD83 in monocytes. Consistent with high levels of PGE₂, expression of COX-2 also was increased upon CD83 treatment. NF-κB activation also is required for induction of PGE₂ by CD83. Finally, application of the COX-2–selective inhibitor NS-398 fully prevented CD83-triggered inhibition of T-cell responses. Our study establishes an immune-regulatory mechanism by CD83 via stimulation of PGE₂ production in monocytes.