Although the immune system has the potential to protect against malignancies, many individuals with cancer are immunosuppressed. Myeloid-derived suppressor cells (MDSC) are elevated in many patients and animals with tumors, and contribute to immune suppression by blocking CD4+ and CD8+ T cell activation. Using the spontaneously metastatic 4T1 mouse mammary carcinoma, we now demonstrate that cross-talk between MDSC and macrophages further subverts tumor immunity by increasing MDSC production of IL-10, and by decreasing macrophage production of IL-12. Cross-talk between MDSC and macrophages requires cell-cell contact, and the IL-12 decrease is dependent on MDSC production of IL-10. Treatment with the chemotherapeutic drug gemcitabine, which reduces MDSC, promotes rejection of established metastatic disease in IL-4Rα−/− mice that produce M1 macrophages by allowing T cell activation, by maintaining macrophage production of IL-12, and by preventing increased production of IL-10. Therefore, MDSC impair tumor immunity by suppressing T cell activation and by interacting with macrophages to increase IL-10 and decrease IL-12 production, thereby promoting a tumor-promoting type 2 response, a process that can be partially reversed by gemcitabine.