Myeloid-derived suppressor cells (MDSCs) represent heterogeneous immunosuppressive cells in multiple cancer types and display potent immunosuppressive activity on T cells. We have shown the increased expression of IDO in breast cancer. Because IDO plays a pivotal role in immune tolerance via suppressing T cell function, the aim of this study was to investigate the expression of IDO in MDSCs in breast cancer and its role in MDSC-mediated inhibition of immune surveillance. The proportion of MDSCs with the phenotype of CD45(+)CD13(+)CD33(+)CD14(-)CD15(-) significantly increased in primary cancer tissues and patients' peripheral blood. IDO expression was significantly upregulated in MDSCs isolated from fresh breast cancer tissues (fresh MDSCs [fMDSCs]), which correlated with increased infiltration of Foxp3(+) regulatory T cells in tumors and lymph node metastasis in patients. fMDSCs inhibited IL-2 and anti-CD3/CD28 mAb-induced T cell amplification and Th1 polarization but stimulated apoptosis in T cells in an IDO-dependent manner. CD33(+) progenitors isolated from healthy donors' umbilical cord blood were cocultured with breast cancer cell line MDA-MB-231 cells to induce MDSCs. IDO expression was upregulated in induced MDSCs, which required phosphorylation of STAT3, but not STAT1. IDO was required for induced MDSCs' immunosuppressive activity on T cells, which was blocked by IDO inhibitor 1-methyl-L-tryptophan or STAT3 antagonist JSI-124. Consistently, increased STAT3 phosphorylation level was found in fMDSCs. Together, our findings suggest that STAT3-dependent IDO expression mediates immunosuppressive effects of MDSCs in breast cancer. Thus, inhibition of MDSC-induced T cell suppression by blocking IDO may represent a previously unrecognized mechanism underlying immunotherapy for breast cancer.