Identification of mechanisms that program early effector T cells to either terminal effector T (T) or memory T (T) cells has important implications for protective immunity against infections and cancers. Here, we show that the cytosolic transcription factor aryl hydrocarbon receptor (AhR) is used by early T cells to program memory fate. Upon antigen engagement, AhR is rapidly up-regulated via reactive oxygen species signaling in early CD8 T cells, which does not affect the effector response, but is required for memory formation. Mechanistically, activated CD8 T cells up-regulate HIF-1α to compete with AhR for HIF-1β, leading to the loss of AhR activity in HIF-1α short-lived effector cells, but sustained in HIF-1α memory precursor effector cells (MPECs) with the help of autocrine IL-2. AhR then licenses CD8 MPECs in a quiescent state for memory formation. These findings partially resolve the long-standing issue of how T cells are regulated to differentiate into memory cells.