Dendritic cells (DCs) derive from CD34+ cells or monocytes and stimulate alloimmune responses in transplantation. We hypothesized that the interaction between CD34+ cells and allogeneic T cells would influence the function of hematopoietic stem cells (HSCs). Cord blood (CB) CD34+ cells proliferated briskly in response to allogeneic, but not autologous, T cells when mixed with irradiated T cells for 6 days in vitro. This proliferation was significantly inhibited by an anti-HLA class II monoclonal antibody (mAb), by an anti-TNFalpha mAb, or by CTLA4-Ig. Allogeneic T cells induced the differentiation of CD34+ progenitors into cells with the morphology of dendritic monocytic precursors and characterized by the expression of HLA-DR, CD86, CD40, CD14, and CD11c, due to an endogenous release of TNFalpha. Cotransplantation of CD34+ cells with allogeneic T cells into nonobese diabetic-severe combined immunodeficiency (NOD/SCID) mice resulted in a greater engraftment of myeloid CD1c+ dendritic cells compared with cotransplantation with autologous T cells. In vitro, CD34+ cell-derived antigen-presenting cells (APCs) were functionally capable of both direct and indirect presentation of alloantigens. Based on these findings, we hypothesize that in HSC transplantation the initial cross talk between allogeneic T cells and CD34+ cells may result in the increased generation of APCs that can present host alloantigens and possibly contribute to the development of graft-versus-host disease.