Hepatotoxicity is one of the most common toxicities observed in non-clinical safety studies of drug candidates, and it is important to understand the hepatotoxicity mechanism to assess the risk of drug-induced liver injury in humans. In this study, we investigated the mechanism of hepatotoxicity caused by 2-[2-Methyl-1-(oxan-4-yl)-1H-benzimidazol-5-yl]-1,3-benzoxazole (DSP-0640), a drug candidate that showed hepatotoxicity characterized by centrilobular hypertrophy and vacuolation of hepatocytes in a 4-week oral repeated-dose toxicity study in male rats. In the liver of rats treated with DSP-0640, the expression of aryl hydrocarbon receptor (AHR) target genes, including Cyp1a1, was upregulated. In in vitro reporter assays, however, DSP-0640 showed only minimal AHR-activating potency. Therefore, we investigated the possibility that DSP-0640 indirectly activated AHR by inhibiting the CYP1 enzyme-dependent clearance of endogenous AHR agonists. In in vitro assays, DSP-0640 showed inhibitory effects on both rat and human CYP1A1 and enhanced rat and human AHR-mediated reporter gene expression induced by 6-formylindolo[3,2-b]carbazole, a well-known endogenous AHR agonist. The possible involvement of CYP1A1 inhibition in AHR activation was also demonstrated with other hepatotoxic compounds tacrine and albendazole. These results suggest that CYP1A1 inhibition-mediated AHR activation is involved in the hepatotoxicity caused by DSP-0640 and that DSP-0640 might induce hepatotoxicity in humans as well. We propose that CYP1A1 inhibition-mediated AHR activation is a novel mechanism for drug-induced hepatotoxicity.