The relative role of oceanic dynamics and surface heat fluxes in the initiation and development of the Indian Ocean dipole was investigated by analyzing results from an oceanic general circulation model. The model was forced by observed surface wind stress and heat flux fields for 1958--1997. The results show that it was capable of reproducing observed dipole events over the tropical Indian Ocean. The diagnosis of the mixed-layer heat budget indicates that the SST anomaly (SSTA) in the east pole is primarily induced by anomalous surface latent heat flux and vertical temperature advection, whereas in the west pole it is mainly caused by meridional and vertical temperature advection anomalies. In both regions shortwave radiation anomalies tend to damp the SSTA. The ocean Rossby waves are essential in linking the anomalous wind and SST off Sumatra and subsurface temperature variations in southwest Indian Ocean.