T lymphocyte dysfunction contributes to human immunodeficiency virus type 1 (HIV-1) disease progression by impairing antivirus cellular immunity. However, the mechanisms of HIV-1 infection-mediated T cell dysfunction are not completely understood. Here, we provide evidence that expansion of monocytic myeloid-derived suppressor cells (M-MDSCs) suppressed T cell function in HIV-1-infected individuals. We observed a dramatic elevation of M-MDSCs (HLA-DR^−/low CD11b⁺ CD33^+/high CD14⁺ CD15⁻ cells) in the peripheral blood of HIV-1-seropositive subjects (n = 61) compared with healthy controls (n = 51), despite efficacious antiretroviral therapy for nearly 2 years. The elevated M-MDSC frequency in HIV-1⁺ subjects correlated with prognostic HIV-1 disease markers, including the HIV-1 load (r = 0.5957; P < 0.0001), CD4⁺ T cell loss (r = −0.5312; P < 0.0001), and activated T cells (r = 0.4421; P = 0.0004). Functional studies showed that M-MDSCs from HIV-1⁺ subjects suppressed T cell responses in both HIV-1-specific and antigen-nonspecific manners; this effect was dependent on the induction of arginase 1 and required direct cell-cell contact. Further investigations revealed that direct HIV-1 infection or culture with HIV-1-derived Tat protein significantly enhanced human MDSC generation in vitro, and MDSCs from healthy donors could be directly infected by HIV-1 to facilitate HIV-1 replication and transmission, indicating that a positive-feedback loop between HIV-1 infection and MDSC expansion existed. In summary, our studies revealed a novel mechanism of T cell dysfunction in HIV-1-infected individuals and suggested that targeting MDSCs may be a promising strategy for HIV-1 immunotherapy.