Phagocytosis of apoptotic cells by both professional and semi‐professional phagocytes is required for resolution of organ damage and maintenance of immune tolerance. KIM‐1/TIM‐1 is a phosphatidylserine receptor that is expressed on epithelial cells and can transform the cells into phagocytes. Here, we demonstrate that KIM‐1 phosphorylation and association with p85 results in encapsulation of phagosomes by lipidated LC3 in multi‐membrane organelles. KIM‐1‐mediated phagocytosis is not associated with increased ROS production, and NOX inhibition does not block LC3 lipidation. Autophagy gene expression is required for efficient clearance of apoptotic cells and phagosome maturation. KIM‐1‐mediated phagocytosis leads to pro‐tolerogenic antigen presentation, which suppresses CD4 T‐cell proliferation and increases the percentage of regulatory T cells in an autophagy gene‐dependent manner. Taken together, these data reveal a novel mechanism of epithelial biology linking phagocytosis, autophagy and antigen presentation to regulation of the inflammatory response.