The role of the tryptophan-metabolizing enzyme indoleamine 2,3-dioxygenase (IDO) in down-regulating human alloresponses has recently been controversially debated. We here demonstrate that human monocyte-derived dendritic cells (mDCs) can be endowed with sustained IDO competence in vitro by 48-hour activation with lipopolysaccharide (LPS) and interferon-gamma (IFN-γ). IFN-γ also amplified proinflammatory cytokine secretion during activation. Yet, on reculture after activation cytokine production ceased, whereas IDO enzymatic activity continued. Manipulation of tryptophan metabolism did not affect proinflammatory cytokine release, suggesting that IFN-γ triggers IDO activity and proinflammatory cytokine release as distinct cellular programs. IDO-competent DCs down-regulated allogeneic T-cell responses, but this IDO-mediated effect was overcome by slightly modifying cell culture conditions. Nevertheless, the CD4⁺CD25⁺ T-cell fraction stimulated by IDO-competent DCs displayed substantial suppressor activity. This suppressive activity (1) required allogeneic stimulation for its induction, (2) affected third-party T cells, and (3) was reduced by the IDO inhibitor methyl-thiohydantoin-tryptophan. It became also manifest when DC/T-cell cocultures were initiated with naive (CD4⁺CD25⁻CD45RA⁺) T cells, indicating the differentiation of adaptive regulatory T cells. Together, these findings suggest that IFN-γ triggered IDO competence in human mDCs constitutes a critical factor for endowing allogeneic T cells with regulatory activity.