Antiviral immunity requires recognition of viral pathogens and activation of cytotoxic and Th cells by innate immune cells. In this study, we demonstrate that hepatitis C virus (HCV) core and nonstructural protein 3 (NS3), but not envelope 2 proteins (E2), activate monocytes and myeloid dendritic cells (DCs) and partially reproduce abnormalities found in chronic HCV infection. HCV core or NS3 (not E2) triggered inflammatory cytokine mRNA and TNF-α production in monocytes. Degradation of I-κBα suggested involvement of NF-κB activation. HCV core and NS3 induced production of the anti-inflammatory cytokine, IL-10. Both monocyte TNF-α and IL-10 levels were higher upon HCV core and NS3 protein stimulation in HCV-infected patients than in normals. HCV core and NS3 (not E2) inhibited differentiation and allostimulatory capacity of immature DCs similar to defects in HCV infection. This was associated with elevated IL-10 and decreased IL-2 levels during T cell proliferation. Increased IL-10 was produced by HCV patients’ DCs and by core-or NS3-treated normal DCs, while IL-12 was decreased only in HCV DCs. Addition of anti-IL-10 Ab, not IL-12, ameliorated T cell proliferation with HCV core-or NS3-treated DCs. Reduced allostimulatory capacity in HCV core-and NS3-treated immature DCs, but not in DCs of HCV patients, was reversed by LPS maturation, suggesting more complex DC defects in vivo than those mediated by core or NS3 proteins. Our results reveal that HCV core and NS3 proteins activate monocytes and inhibit DC differentiation in the absence of the intact virus and mediate some of the immunoinhibitory effects of HCV via IL-10 induction.