Myeloid-derived suppressor cells (MDSCs) favor tumor promotion, mainly by suppressing antitumor T cell responses in many cancers. Although the mechanism of T cell inhibition is established, the pathways leading to MDSC accumulation in bone marrow and secondary lymphoid organs of tumor-bearing hosts remain unclear. We demonstrate that down-regulation of PLCγ2 signaling in MDSCs is responsible for their aberrant expansion during tumor progression. PLCγ2^−/− MDSCs show stronger immune-suppressive activity against CD8⁺ T cells than WT MDSCs and potently promote tumor growth when adoptively transferred into WT mice. Mechanistically, PLCγ2^−/− MDSCs display reduced β-catenin levels, and restoration of β-catenin expression decreases their expansion and tumor growth. Consistent with a negative role for β-catenin in MDSCs, its deletion in the myeloid population leads to MDSC accumulation and supports tumor progression, whereas expression of β-catenin constitutively active reduces MDSC numbers and protects from tumor growth. Further emphasizing the clinical relevance of these findings, MDSCs isolated from pancreatic cancer patients show reduced p-PLCγ2 and β-catenin levels compared with healthy controls, similar to tumor-bearing mice. Thus, for the first time, we demonstrate that down-regulation of PLCγ2–β-catenin pathway occurs in mice and humans and leads to MDSC-mediated tumor expansion, raising concerns about the efficacy of systemic β-catenin blockade as anti-cancer therapy.