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.