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The intracellular transcription factor aryl hydrocarbon receptor (AHR) is bound and activated by xenobiotics, thereby promoting their catabolism by inducing expression of cytochrome P450 oxidase (CYP) genes through binding xenobiotic response elements (XRE) in their promoter region. In addition, it is involved in several cellular pathways like cell proliferation, differentiation, regeneration, tumor invasiveness and immune responses. Several pharmaceutical compounds like benzimidazoles activate the AHR and induce their own metabolic degradation. Using newly generated XRE-reporter mice, which allow in vivo bioluminescence imaging of AHR activation, we show here that the AHR is activated in vivo by teriflunomide (TER), which has recently been approved for the treatment of multiple sclerosis. While we did not find any evidence that the AHR mediates the immunomodulatory effects of TER, AHR activation led to metabolism and detoxification of teriflunomide, most likely via CYP. Mice deficient for the AHR show higher blood levels of teriflunomide, suffer from enhanced thrombo- and leukopenia and elevated liver enzymes as well as from severe gastrointestinal ulcers and bleeding which are lethal after 8–11 days of treatment. Leukopenia, acute liver damage and diarrhea have also been described as common side effects in human trials with TER. These data suggest that the AHR is relevant for detoxification not only of environmental toxins but also of drugs in clinical use, with potential implications for the application of AHR-modifying therapies in conjunction to TER in humans. The XRE-reporter mouse is a useful novel tool for monitoring AHR activation using in vivo imaging.