We previously demonstrated that a specialized subset of immature myeloid cells migrate to lymphoid organs as a result of tumor growth or immune stress, where they suppress B and T cell responses to Ags. Although NO was required for suppression of mitogen activation of T cells by myeloid suppressor cells (MSC), it was not required for suppression of allogenic responses. In this study, we describe a novel mechanism used by MSC to block T cell proliferation and CTL generation in response to alloantigen, which is mediated by the enzyme arginase 1 (Arg1). We show that Arg1 increases superoxide production in myeloid cells through a pathway that likely utilizes the reductase domain of inducible NO synthase (iNOS), and that superoxide is required for Arg1-dependent suppression of T cell function. Arg1 is induced by IL-4 in freshly isolated MSC or cloned MSC lines, and is therefore up-regulated by activated Th2, but not Th1, cells. In contrast, iNOS is induced by IFN-γ and Th1 cells. Because Arg1 and iNOS share l-arginine as a common substrate, our results indicate that l-arginine metabolism in myeloid cells is a potential target for selective intervention in reversing myeloid-induced dysfunction in tumor-bearing hosts.