Bacterial pneumonia remains a significant burden worldwide. Although an inflammatory response in the lung is required to fight the causative agent, persistent tissue-resident neutrophils in non-resolving pneumonia can induce collateral tissue damage and precipitate acute lung injury. However, little is known about mechanisms orchestrated in the lung tissue that remove apoptotic neutrophils to restore tissue homeostasis. In mice infected with Klebsiella pneumoniae, a bacterium commonly associated with hospital-acquired pneumonia, we show that interleukin (IL)-10 is essential for resolution of lung inflammation and recovery of mice after infection. Although IL-10−/− mice cleared bacteria, they displayed increased morbidity with progressive weight loss and persistent lung inflammation in the later phase after infection. A source of tissue IL-10 was found to be resident CD11b+ Gr1 int F4/80+ cells resembling myeloid-derived suppressor cells (MDSCs) that appeared with a delayed kinetics after infection. These cells efficiently efferocytosed apoptotic neutrophils, which was aided by IL-10. The lung neutrophil burden was attenuated in infected signal transducer and activator of transcription 1 (STAT1)−/− mice with concomitant increase in the frequency of the MDSC-like cells and lung IL-10 levels. Thus, inhibiting STAT1 in combination with antibiotics may be a novel therapeutic strategy to address inefficient resolution of bacterial pneumonia.