Despite its decades' long therapeutic use in psychiatry, the biological mechanisms underlying lithium's mood-stabilizing effects have remained largely elusive. Here, we investigated the effect of lithium on tryptophan breakdown via the kynurenine pathway using immortalized human microglia cells, primary human microglia isolated from surgical specimens, and microglia-like cells differentiated from human induced pluripotent stem cells. Interferon (IFN)-gamma, but not lipopolysaccharide, was able to activate immortalized human microglia, inducing a robust increase in indoleamine-2,3-dioxygenase (IDO1) mRNA transcription, IDO1 protein expression, and activity. Further, chromatin immunoprecipitation verified enriched binding of both STAT1 and STAT3 to the IDO1 promoter. Lithium counteracted these effects, increasing inhibitory GSK3 beta(S9) phosphorylation and reducing STAT1(S727) and STAT3(Y705) phosphorylation levels in IFN-gamma treated cells. Studies in primary human microglia and hiPSC-derived microglia confirmed the anti-inflammatory effects of lithium, highlighting that IDO activity is reduced by GSK3 inhibitor SB-216763 and STAT inhibitor nifuroxazide via downregulation of P-STAT1(S727) and P-STAT3(Y705). Primary human microglia differed from immortalized human microglia and hiPSC derived microglia-like cells in their strong sensitivity to LPS, resulting in robust upregulation of IDO1 and anti-inflammatory cytokine IL-10. While lithium again decreased IDO1 activity in primary cells, it further increased release of IL-10 in response to LPS. Taken together, our study demonstrates that lithium inhibits the inflammatory kynurenine pathway in the microglia compartment of the human brain.