It has been reported that TNFR2 is involved in regulatory T cell induction and myeloid-derived suppressor cell (MDSC) accumulation, two kinds of immunosuppressive cells contributing to tumor immune evasion. Because transmembrane TNF-α (tmTNF-α) is the primary ligand for TNFR2, we hypothesized that tmTNF-α is mainly responsible for the activation of MDSCs. Indeed, we found that tmTNF-α, rather than secretory TNF-α (sTNF-α), activated MDSCs with enhanced suppressive activities, including upregulating arginase-1 and inducible NO synthase transcription, promoting secretion of NO, reactive oxygen species, IL-10, and TGF-β, and enhancing inhibition of lymphocyte proliferation. This effect of tmTNF-α was mediated by TNFR2, as TNFR2 deficiency significantly impaired tmTNF-α-induced release of IL-10 and NO and inhibition of T cell proliferation by MDSC supernatant. Furthermore, tmTNF-α caused p38 phosphorylation and NF-κB activation, whereas inhibition of NF-κB or p38 with an inhibitor pyrrolidine dithiocarbamate or SB203580 abrogated tmTNF-α-mediated increased suppression of lymphocyte proliferation by MDSCs. Consistently, our in vivo study showed that ectopic expression of uncleavable tmTNF-α mutant by 4T1 cells significantly promoted tumor progression and angiogenesis, accompanied with more accumulation of MDSCs and regulatory T cells in the tumor site, increased production of NO, IL-10, and TGF-β, as well as poor lymphocyte infiltration. In contrast, enforced expression of sTNF-α mutant by 4T1 cells that only released sTNF-α without expression of surface tmTNF-α markedly reduced MDSC accumulation and induced more lymphocyte infiltration instead, showing obvious tumor regression. Our data suggest that tmTNF-α acts as a potent activator of MDSCs via TNFR2 and reveals another novel immunosuppressive effect of this membrane molecule that promotes tumor immune escape.