Interaction blockade occurs when strong interactions in a confined, few-body system prevent a particle from occupying an otherwise accessible quantum state. Blockade phenomena reveal the underlying granular nature of quantum systems and allow for the detection and manipulation of the constituent particles, be they electrons1, spins2, atoms3,4,5or photons6. Applications include single-electron transistors based on electronic Coulomb blockade7and quantum logic gates in Rydberg atoms8,9. Here we report a form of interaction blockade that occurs when transferring ultracold atoms between orbitals in an optical lattice. We call this orbital excitation blockade (OEB). In this system, atoms at the same lattice site undergo coherent collisions described by a contact interaction whose strength depends strongly on the orbital wavefunctions of the atoms. We induce coherent orbital excitations by modulating the lattice depth, and observe staircase-like excitation behaviour as we cross the interaction-split resonances by tuning the modulation frequency. As an application of OEB, we demonstrate algorithmic cooling10,11of quantum gases: a sequence of reversible OEB-based quantum operations isolates the entropy in one part of the system and then an irreversible step removes the entropy from the gas. This technique may make it possible to cool quantum gases to have the ultralow entropies required for quantum simulation12,13of strongly correlated electron systems. In addition, the close analogy between OEB and dipole blockade in Rydberg atoms provides a plan for the implementation of two-quantum-bit gates14in a quantum computing architecture with natural scalability.