Malnutrition predicts an increased risk of morbidity and mortality from infection. Defects in cell-mediated immunity, such as thymic atrophy, impaired cutaneous tuberculin responses, and reduced T cell mitogenesis in vitro, are well characterized. There has been no convincing mechanism proposed for these T cell defects. However, as T cell responses rely on signals received from APCs, this study evaluates dendritic cell (DC) function in children with severe malnutrition. Repeated sampling of peripheral blood from 81 severely malnourished children at the University Teaching Hospital, Lusaka, Zambia, demonstrated for the first time a defect in DC numbers in children with malnutrition (28 per microliter) and a recovery in cell number (48 per microliter; p < 0.01) with standard treatment. We describe normal DC maturation in the majority of malnourished children. However, in 17% of our study patients, in association with endotoxemia we describe the novel finding of DC maturation failure (down-regulation rather than up-regulation of HLA-DR). There was a strong correlation between the strength of HLA-DR up or down-regulation and the generation of IL-10 ( r = −0.481; p = 0.003). These “anergic” DCs failed to support T cell proliferation. Defects in DC number and the immunosuppressive phenotype of DCs from severely malnourished children with endotoxemia provide a rational basis for the anergy found in severe malnutrition.