Chronic inflammation is associated with promotion of malignancy and tumor progression. Many tumors enhance the accumulation of myeloid‐derived suppressor cells (MDSC), which contribute to tumor progression and growth by suppressing anti‐tumor immune responses. Tumor‐derived IL‐1β secreted into the tumor microenvironment has been shown to induce the accumulation of MDSC possessing an enhanced capacity to suppress T cells. In this study, we found that the enhanced suppressive potential of IL‐1β‐induced MDSC was due to the activity of a novel subset of MDSC lacking Ly6C expression. This subset was present at low frequency in tumor‐bearing mice in the absence of IL‐1β‐induced inflammation; however, under inflammatory conditions, Ly6C^neg MDSC were predominant. Ly6C^neg MDSC impaired NK cell development and functions in vitro and in vivo. These results identify a novel IL‐1β‐induced subset of MDSC with unique functional properties. Ly6C^neg MDSC mediating NK cell suppression may thus represent useful targets for therapeutic interventions.