Tryptophan-catabolizing enzyme indoleamine 2,3-dioxygenase 1 (IDO1) also has an immunological function to suppress T cell activation in inflammatory circumstances, including graft-versus-host disease (GVHD), a fatal complication after allogeneic bone marrow transplantation (allo-BMT). Although the mononuclear cell expression of IDO1 has been associated with improved outcomes in GVHD, the underlying mechanisms remain unclear. Herein, we used IDO-deficient (Ido1-/-) BMT to understand why myeloid IDO limits the severity of GVHD. Hosts with Ido1-/- BM exhibited increased lethality, with enhanced proinflammatory and reduced regulatory T cell responses compared with wild type (WT) allo-BMT controls. Despite the comparable expression of the myeloid-derived suppressor cell (MDSC) mediators, arginase-1, inducible nitric oxide synthase, and interleukin 10, Ido1-/- Gr-1+CD11b+ cells from allo-BMT or in vitro BM culture showed compromised immune-suppressive functions and were skewed toward the Ly6ClowLy6Ghi subset, compared with the WT counterparts. Importantly, Ido1-/-Gr-1+CD11b+ cells exhibited elevated levels of reactive oxygen species (ROS) and neutrophil numbers. These characteristics were rescued by human IDO1 with intact heme-binding and catalytic activities and were recapitulated by the treatment of WT cells with the IDO1 inhibitor L1-methyl tryptophan. ROS scavenging by N-acetylcysteine reverted the Ido1-/-Gr-1+CD11b+ composition and function to an MDSC state, as well as improved the survival of GVHD hosts with Ido1-/- BM. In summary, myeloid-derived IDO1 enhances GVHD survival by regulating ROS levels and limiting the ability of Gr-1+CD11b+ MDSCs to differentiate into proinflammatory neutrophils. Our findings provide a mechanistic insight into the immune-regulatory roles of the metabolic enzyme IDO1.