The anomalous response of the tropical atmosphere to the recently discovered Indian Ocean Dipole has been studied in the present article, using an Atmospheric General Circulation Model (AGCM), and the NCEP/NCAR Reanalysis. Our AGCM study shows that the response of the atmosphere to the IOD is of dipole—like pattern in the circulation, and is baroclinic. An anomalous circulation in the zonalvertical plane is induced, with the subsidence over colder pole and the upward motion over the warmer pole, modulating the Walker circulation over the equatorial Indian Ocean, as observed. An anomalous circulation in the meridional-vertical plane from the eastern pole of the dipole towards India, and the Bay of Bengal is simulated, which affects the Indian summer monsoon rainfall. The model atmosphere is heated by the anomalous surplus of the latent heat, the net long-wave radiation, and sensible heat fluxes over the warmer pole of the IOD. This results in an excess of net vertically integrated moisture convergence, and excess latent heat release in the atmospheric column above the warm pole. This energy, together with the anomalous convergence of enthalpy, is converted into anomalous mechanical energy and leads to the divergence of mechanical energy flux. This anomalous divergence of the mechanical energy in the upper tropospheric part of the column causes propagation of the disturbances to the surrounding regions. The mean seasonal circulation during the boreal summer is crucial for maintenance of the anomalous energy distribution and propagation during the IOD event. Transient high frequency variability does not appear to contribute much to the energy conversions.