Impaired myeloid dendritic cells (mDC) fail to elicit host antiviral immune responses, leading to disease progression in HIV‐1 infection. However, mechanisms underlying mDC suppression remain elusive. In this study, we found that the T‐cell co‐stimulatory molecule programmed death‐1 ligand‐1 (B7‐H1) is significantly up‐regulated on peripheral mDC in HIV‐1‐infected typical progressors and AIDS patients, but is maintained at a relatively low level in long‐term non‐progressors. Successful immune reconstitution after highly active antiretroviral therapy, indicated by full suppression of HIV‐1 replication and substantial increases of CD4 T‐cell counts, correlated with a decrease in B7‐H1 expression. Importantly, we also found that X4 HIV‐1 isolates directly induced B7‐H1 expression on mDC in vitro, while adding antiviral agents hampered this B7‐H1 up‐regulation. Blockade of B7‐H1 in vitro strongly enhanced mDC‐mediated allostimulatory capacity and IL‐12 production. In contrast, B7‐H1 ligation with soluble programmed death‐1 (PD‐1) reduced mDC maturation and IL‐12 production but increased mDC apoptosis and IL‐10 production. Thus, B7‐H1 up‐regulation may inhibit mDC‐mediated immune response, thereby facilitating viral persistence and disease progression in HIV‐1‐infected patients. This study provides new evidence that B7‐H1 inhibitory signaling may reversely mediate functional impairment of mDC in HIV‐1 infection, which further supports the notion that B7‐H1 blockade represents a novel therapeutic approach to this disease.