Cell-based strategies represent a new frontier in the treatment of immune-mediated disorders. However, the paucity of markers for isolation of molecularly defined immunomodulatory cell populations poses a barrier to this field. Here, we show that ATP-binding cassette member B5 (ABCB5) identifies dermal immunoregulatory cells (DIRCs) capable of exerting therapeutic immunoregulatory functions through engagement of programmed cell death 1 (PD-1). Purified Abcb5(+) DIRCs suppressed T cell proliferation, evaded immune rejection, homed to recipient immune tissues, and induced Tregs in vivo. In fully major-histocompatibility-complex-mismatched cardiac allotransplantation models, allogeneic DIRCs significantly prolonged allograft survival. Blockade of DIRC-expressed PD-1 reversed the inhibitory effects of DIRCs on T cell activation, inhibited DIRC-dependent Treg induction, and attenuated DIRC-induced prolongation of cardiac allograft survival, indicating that DIRC immunoregulatory function is mediated, at least in part, through PD-1. Our results identify ABCB5(+) DIRCs as a distinct immunoregulatory cell population and suggest promising roles of this expandable cell subset in cellular immunotherapy.