Marrow stromal cells (MSCs) inhibit allogeneic T-cell responses, yet the molecular mechanism mediating this immunosuppressive effect of MSCs remains controversial. Recently, expression of indoleamine 2,3-dioxygenase (IDO), which is induced by interferon-gamma (IFN-gamma) and catalyzes the conversion from tryptophan to kynurenine, has been identified as a T-cell inhibitory effector pathway in professional antigen-presenting cells. Here we show that human MSCs express IDO protein and exhibit functional IDO activity upon stimulation with IFN-gamma. MSCs inhibit allogeneic T-cell responses in mixed lymphocyte reactions (MLRs). Concomitantly, IDO activity resulting in tryptophan depletion and kynurenine production is detected in MSC/MLR coculture supernatants. Addition of tryptophan significantly restores allogeneic T-cell proliferation, thus identifying IDO-mediated tryptophan catabolism as a novel T-cell inhibitory effector mechanism in human MSCs. As IDO-mediated T-cell inhibition depends on MSC activation, modulation of IDO activity might alter the immunosuppressive properties of MSCs in different therapeutic applications.