Understanding the mechanism that leads to immune dysfunction in severe coronavirus disease 2019 (COVID-19) is crucial for the development of effective treatment. Here, using single-cell RNA sequencing, we characterized the peripheral blood mononuclear cells (PBMCs) from uninfected controls and COVID-19 patients and cells in paired broncho-alveolar lavage fluid (BALF). We found a close association of decreased dendritic cells (DCs) and increased monocytes resembling myeloid-derived suppressor cells (MDSCs), which correlated with lymphopenia and inflammation in the blood of severe COVID-19 patients. Those MDSC-like monocytes were immune-paralyzed. In contrast, monocyte-macrophages in BALFs of COVID-19 patients produced massive amounts of cytokines and chemokines, but secreted little interferons. The frequencies of peripheral T cells and NK cells were significantly decreased in severe COVID-19 patients, especially for innate-like T and various CD8⁺ T cell subsets, compared to healthy controls. In contrast, the proportions of various activated CD4⁺ T cell subsets among the T cell compartment, including Th1, Th2, and Th17-like cells were increased and more clonally expanded in severe COVID-19 patients. Patients’ peripheral T cells showed no sign of exhaustion or augmented cell death, whereas T cells in BALFs produced higher levels of IFNG, TNF, CCL4, CCL5, etc. Paired TCR tracking indicated abundant recruitment of peripheral T cells to the severe patients’ lung. Together, this study comprehensively depicts how the immune cell landscape is perturbed in severe COVID-19.