Dermal fibrosis is characterized by a high deposition of extracellular matrix (ECM) and tissue cellularity. Unfortunately all means of treating this condition are unsatisfactory. We have previously reported the anti‐fibrotic effects of Kynurenine (Kyn), a tryptophan metabolite, in fibrotic rabbit ear model. Here, we report the mechanism by which Kyn modulates the expression of key ECM components in dermal fibroblasts. The results showed that Kyn activates aryl hydrocarbon receptor (AHR) nuclear translocation and up‐regulates cytochrome‐P450 (CYP1A‐1) expression, the AHR target gene. A specific AHR antagonist, 6,2′,4′‐trimethoxyflavone, inhibited the Kyn‐dependent modulation of CYP1A‐1, MMP‐1, and type‐I collagen expression. Establishing the anti‐fibrogenic effect of Kyn and its mechanism of action, we then developed nano‐fibrous Kyn slow‐releasing dressings and examined their anti‐fibrotic efficacy in vitro and in a rat model. Our results showed the feasibility of incorporating Kyn into PVA/PLGA nanofibers, prolonging the Kyn release up to 4 days tested. Application of medicated‐dressings significantly improved the dermal fibrosis indicated by MMP‐1 induction, alpha‐smooth muscle actin and type‐I collagen suppression, and reduced tissue cellularity, T‐cells and myofibroblasts. This study clarifies the mechanism by which Kyn modulates ECM expression and reports the development of a new slow‐releasing anti‐fibrogenic dressing. J. Cell. Physiol. 231: 2749–2760, 2016. © 2016 Wiley Periodicals, Inc. Kynurenine modulates the expression of collagen and collagenase (MMP‐1) via aryl hydrocarbon receptor signaling pathway. The medicated nanofibrous wound dressings, developed in this study, can be used as an effective slow releasing drug delivery system in order to prevent the post‐burn and pots‐surgical hypertrophic scar formation.