Chronic inflammation is associated with promotion of malignancy and tumor progression. Many tumors enhance the accumulation of myeloid-derived suppressor cells (MDSC), which contribute to tumor progression and growth by suppressing anti-tumor immune responses. Tumor-derived IL-1β secreted into the tumor microenvironment has been shown to induce the accumulation of MDSC possessing an enhanced capacity to suppress T cells. In this study, we found that the enhanced suppressive potential of IL-1β-induced MDSC was due to the activity of a novel subset of MDSC lacking Ly6C expression. This subset was present at low frequency in tumor-bearing mice in the absence of IL-1β-induced inflammation; however, under inflammatory conditions, Ly6C(neg) MDSC were predominant. Ly6C(neg) MDSC impaired NK cell development and functions in vitro and in vivo. These results identify a novel IL-1β-induced subset of MDSC with unique functional properties. Ly6C(neg) MDSC mediating NK cell suppression may thus represent useful targets for therapeutic interventions.