Graft-versus-host disease (GVHD) is initiated after activation of donor T cells by host antigen-presenting cells (APCs). The immunosuppressive enzyme indoleamine 2,3-dioxygenase (IDO) is expressed by APCs and parenchymal cells and is further inducible by inflammation. We investigated whether lethal conditioning and GVHD induce IDO and if IDO prevents tissue injury by suppressing immune responses at the induction site. We determined that IDO is a critical regulator of GVHD, most strikingly in the colon, where epithelial cells dramatically up-regulated IDO expression during GVHD. IDO^−/− mice died more quickly from GVHD, displaying increased colonic inflammation and T-cell infiltration. GVHD protection was not mediated by control of T-cell proliferation, apoptosis, or effector mechanisms in lymphoid organs, nor did it require donor T regulatory cells. Instead, T cells in IDO^−/− colons underwent increased proliferation and decreased apoptosis compared with their wild-type counterparts. This evidence suggests that IDO can act at the site of expression to decrease T-cell proliferation and survival, diminishing colonic inflammation and reducing disease severity. These studies are the first to identify a function for IDO in GVHD lethality and indicate that modulation of the IDO pathway may be an effective strategy for treatment of this disease.