CD8⁺ T cell exhaustion dampens antitumor immunity. Although several transcription factors have been identified that regulate T cell exhaustion, the molecular mechanisms by which CD8⁺ T cells are triggered to enter an exhausted state remain unclear. Here, we show that interleukin-2 (IL-2) acts as an environmental cue to induce CD8⁺ T cell exhaustion within tumor microenvironments. We find that a continuously high level of IL-2 leads to the persistent activation of STAT5 in CD8⁺ T cells, which in turn induces strong expression of tryptophan hydroxylase 1, thus catalyzing the conversion to tryptophan to 5-hydroxytryptophan (5-HTP). 5-HTP subsequently activates AhR nuclear translocation, causing a coordinated upregulation of inhibitory receptors and downregulation of cytokine and effector-molecule production, thereby rendering T cells dysfunctional in the tumor microenvironment. This molecular pathway is not only present in mouse tumor models but is also observed in people with cancer, identifying IL-2 as a novel inducer of T cell exhaustion.