Identification of mechanisms that program early effector T cells to either terminal effector T (Teff) or memory T (Tm) 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 Teff cells to program memory fate. Upon antigen engagement, AhR is rapidly up-regulated via reactive oxygen species signaling in early CD8+ Teff 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-1αhigh short-lived effector cells, but sustained in HIF-1αlow 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 Teff cells are regulated to differentiate into memory cells.