Human monocyte-derived dendritic cells (DCs) are capable of expressing the tryptophan-degrading enzyme indoleamine 2,3-dioxygenase (IDO), which allows them to suppress Ag-driven proliferation of T cells in vitro. In DCs that express IDO, the activity of the enzyme is tightly regulated, with the protein being constitutively expressed, but functional activity requiring an additional set of triggering signals supplied during Ag presentation. We now show that triggering of functional IDO obligately requires ligation of B7-1/B7-2 molecules on the DCs by CTLA4/CD28 expressed on T cells. When this interaction was disrupted, IDO remained in the inactive state, and the DCs were unable to inhibit T cell proliferation. Inhibition could be fully restored by direct Ab-mediated cross-linking of B7-1/B7-2. Although both CD4+ and CD8+ T cells were susceptible to inhibition once IDO was induced, the ability to trigger functionally active IDO was strictly confined to the CD4+ subset. Thus, the ability of CD4+ T cells to induce IDO activity in DCs allowed the CD4+ population to dominantly inhibit proliferation of the CD8+ population via the bridge of a conditioned DC. We hypothesize that IDO activation via engagement of B7-1/B7-2 molecules on DCs, specifically, engagement by CTLA4 expressed on regulatory CD4+ T cells, may function as a physiologic regulator of T cell responses in vivo.