Pesantren (Islamic Boarding School) is an Islamic educational institution in Indonesia, established long before the country's independence. Despite its long and influential role in the national education system of Indonesia, little is known how Pesantren has developed its local wisdom values to educate its students. This qualitative and descriptive study investigated local wisdom and values that Pesantren has developed as its distinctive characteristics colouring the Indonesian national education system. The study also examined methods used by this institution to develop its distinctive local wisdom values. Data was obtained from observation and interviews with leaders and students in three different Pesantrens in West Java, Jakarta and Banten provinces. Results show that since its establishment, Pesantren has developed and instilled Islamic values including theology and philosophy, physical development, Arabic language, aesthetics, and teleology, among its students.