Myeloid-derived suppressor cells (MDSCs) bear characteristics of precursors for both M1 and M2 macrophages. The molecular mechanism underlying the differentiation into M1 and M2 macrophages and the relationship of this differentiation to antitumor responses remains largely undefined. Herein, we investigate the potential function of paired immunoglobulin-like receptor B (PIR-B), also known as leukocyte immunoglobulin-like receptor subfamily B member 3 (LILRB3) in MDSC differentiation, and its role in tumor-induced immunity. Our studies indicated that MDSCs genetically ablated for PIR-B (Lilrb3^−/−) underwent a specific transition to M1-like cells when entering the periphery from bone marrow, resulting in decreased suppressive function, regulatory T cell activation activity, primary tumor growth, and lung metastases. Activation of Toll-like receptor (TLR), signal transducers, and activators of transcription 1 (STAT1), and nuclear factor-kappa B (NF-κB) signaling in Lilrb3^−/− MDSC promoted the acquisition of M1 phenotype. Inhibition of the PIR-B signaling pathway promoted MDSC differentiation into M1 macrophages.