Natural immune tolerance is a formidable barrier to successful immunotherapy to treat established cancers and chronic infections. Conversely, creating robust immune tolerance via immunotherapy is the major goal in treating autoimmune and allergic diseases, and enhancing survival of transplanted organs and tissues. In this review, we focus on a natural mechanism that creates local T-cell tolerance in many clinically relevant settings of chronic inflammation involving expression of the cytosolic enzyme indoleamine 2,3-dioxygenase (IDO) by specialized subsets of dendritic cells. IDO-expressing dendritic cells suppress antigen-specific T-cell responses directly, and induce bystander suppression by activating regulatory T cells. Thus, manipulating IDO is a promising strategy to treat a range of chronic inflammatory diseases.