Despite the clinical successes fostered by immune checkpoint inhibitors, mechanisms underlying PD-1 upregulation in tumor-infiltrating T cells remain an enigma. Here, we show that tumor-repopulating cells (TRCs) drive PD-1 upregulation in CD8⁺ T cells through a transcellular kynurenine (Kyn)-aryl hydrocarbon receptor (AhR) pathway. Interferon-γ produced by CD8⁺ T cells stimulates release of high levels of Kyn produced by TRCs, which is transferred into adjacent CD8⁺ T cells via the transporters SLC7A8 and PAT4. Kyn induces and activates AhR and thereby upregulates PD-1 expression. This Kyn-AhR pathway is confirmed in both tumor-bearing mice and cancer patients and its blockade enhances antitumor adoptive T cell therapy efficacy. Thus, we uncovered a mechanism of PD-1 upregulation with potential tumor immunotherapeutic applications.