The accumulation of myeloid suppressor cells (MSCs) is associated with immune suppression in tumor-bearing mice and in cancer patients. The suppressive activity of MSC correlates with the expression of the myeloid markers Gr-1, CD115 (macrophage colony-stimulating factor receptor), and F4/80. Gr-1⁺CD115⁺ MSCs, in addition to being able to suppress T-cell proliferation in vitro, can induce the development of Foxp3⁺ T regulatory cells (Treg) in vivo, which are anergic and suppressive. Furthermore, the secretion of interleukin (IL)-10 and transforming growth factor-β by Gr-1⁺CD115⁺ MSCs was induced and enhanced, respectively, on IFN-γ stimulation. The development of Treg requires antigen-associated activation of tumor-specific T cells, depends on the presence of IFN-γ and IL-10, and is independent of the nitric oxide–mediated suppressive mechanism by MSC. Our data provide evidence that Gr-1⁺CD115⁺ MSC can mediate the development of Treg in tumor-bearing mice and show a novel immune suppressive mechanism by which MSCs can suppress antitumor responses. (Cancer Res 2006; 66(2): 1123-31)