Interactions with the immune system may lead tumorigenic cells into dormancy. However, the underlying molecular mechanism is poorly understood. Using a 3D fibrin gel model, we show that IFN-γ induces tumour-repopulating cells (TRCs) to enter dormancy through an indolamine 2,3-dioxygenase 1 (IDO1)-kynurenine (Kyn)-aryl hydrocarbon receptor (AhR)-p27 dependent pathway. Mechanistically, IFN-γ signalling triggers differentiated tumour cell apoptosis via STAT1; however, when IDO1 and AhR are highly expressed as in TRCs, IFN-γ results in IDO1/AhR-dependent p27 induction that prevents STAT1 signalling, thus suppressing the process of cell death and activating the dormancy program. Blocking the IDO/AhR metabolic circuitry not only abrogates IFN-γ-induced dormancy but also results in enhanced repression of tumour growth by IFN-γ-induced apoptosis of TRCs both in vitro and in vivo. These data present a previously unrecognized mechanism of inducing TRC dormancy by IFN-γ, suggesting a potential effective cancer immunotherapeutic modality through the combination of IFN-γ and IDO/AhR inhibitors.