Indoleamine 2,3-dioxygenase (IDO) has immunoregulatory roles associated with tryptophan metabolism. These include counter-regulation (controlling inflammation) and acquired tolerance in T cells. Recent findings reveal that IDO can be triggered by innate responses during tumorigenesis, and also by attempted T cell activation, either spontaneous or due to immunotherapy. Here we review the current understanding of mechanisms by which IDO participates in the control of inflammation and in peripheral tolerance. Focusing on the tumor microenvironment, we examine the role of IDO in response to apoptotic cells and the impact of IDO on Treg cell function. We discuss how the counter-regulatory and tolerogenic functions of IDO can be targeted for cancer immunotherapy and present an overview of the current clinical progress in this area.