Indoleamine 2,3-dioxygenase (IDO) is a novel immunosuppressive agent expressed in some subsets of normal and neoplastic cells, including acute myeloid leukemia (AML) cells. Here, we show that IDO expression correlates with increased circulating CD4+CD25+FOXP3+ T cells in patients with AML at diagnosis. In vitro, IDO+ AML cells increase the number of CD4+ CD25+ T cells expressing surface CTLA-4 and FOXP3 mRNA, and this effect is completely abrogated by the IDO inhibitor, 1-methyl tryptophan (1-MT). Purified CD4+CD25+ T cells obtained from coculture with IDO+ AML cells act as T regulatory (T(reg)) cells because they do not proliferate, do not produce interleukin (IL)-2, and inhibit naive T-cell proliferation. Coculture with IDO+AML cells results in the conversion of CD4+CD25- into CD4+CD25+ T cells, which is completely abrogated by 1-MT. Moreover, in mice, intrasplenic injection of IDO+ leukemia/ lymphoma A20 cells induces the expansion of bona fide T(reg) cells by conversion of CD4+CD25- T cells; this effect is counteracted by 1-MT treatment. These data indicate that AML cells induce T-cell tolerance by directly converting CD4+CD25- T cells into CD4+CD25+ T(reg) cells through an IDO-dependent mechanism.