Interferons (IFNs) are critical for immune defense against pathogens. While type‐I and ‐III IFNs have been reported to inhibit SARS‐CoV‐2 replication, the antiviral effect and mechanism of type‐II IFN against SARS‐CoV‐2 remain largely unknown. Here, we evaluate the antiviral activity of type‐II IFN (IFNγ) using human lung epithelial cells (Calu3) and ex vivo human lung tissues. In this study, we found that IFNγ suppresses SARS‐CoV‐2 replication in both Calu3 cells and ex vivo human lung tissues. Moreover, IFNγ treatment does not significantly modulate the expression of SARS‐CoV‐2 entry‐related factors and induces a similar level of pro‐inflammatory response in human lung tissues when compared with IFNβ treatment. Mechanistically, we show that overexpression of indoleamine 2,3‐dioxygenase 1 (IDO1), which is most profoundly induced by IFNγ, substantially restricts the replication of ancestral SARS‐CoV‐2 and the Alpha and Delta variants. Meanwhile, loss‐of‐function study reveals that IDO1 knockdown restores SARS‐CoV‐2 replication restricted by IFNγ in Calu3 cells. We further found that the treatment of l‐tryptophan, a substrate of IDO1, partially rescues the IFNγ‐mediated inhibitory effect on SARS‐CoV‐2 replication in both Calu3 cells and ex vivo human lung tissues. Collectively, these results suggest that type‐II IFN potently inhibits SARS‐CoV‐2 replication through IDO1‐mediated antiviral response.