A healthy immune system results from a balance of stimulatory and inhibitory pathways that allow effective responses to acute insults, without descending into chronic inflammation. Failed homeostasis is characteristic of autoimmune diseases such as systemic lupus erythematosus. Although HMGB1 induces proinflammatory M1-like macrophage differentiation, we describe a mechanism by which C1q modulates this activity and collaborates with HMGB1 to induce the differentiation of monocytes to anti-inflammatory M2-like macrophages. These anti-inflammatory macrophages are unresponsive to dendritic cell induction factors, effectively removing them from participation in an adaptive immune response. This pathway is mediated through a complex with RAGE and LAIR-1 and depends on relative levels of C1q and HMGB1. Importantly, these data provide insight into a homeostatic mechanism in which C1q and HMGB1 can cooperate to terminate inflammation, and which may be impaired in C1q-deficient patients with autoimmune disease.