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The induction of CD11b(+)Gr-1(+) myeloid-derived suppressor cells (MDSCs) is an important immune-evading mechanism used by tumors. However, the exact nature and function of MDSCs remain elusive, especially because they constitute a heterogeneous population that has not yet been clearly defined. Here, we identified 2 distinct MDSC subfractions with clear morphologic, molecular, and functional differences. These fractions consisted of either mononuclear cells (MO-MDSCs), resembling inflammatory monocytes, or low-density polymorphonuclear cells (PMN-MDSCs), akin to immature neutrophils. Interestingly, both MO-MDSCs and PMN-MDSCs suppressed antigen-specific T-cell responses, albeit using distinct effector molecules and signaling pathways. Blocking IFN-gamma or disrupting STAT1 partially impaired suppression by MO-MDSCs, for which nitric oxide (NO) was one of the mediators. In contrast, while IFN-gamma was strictly required for the suppressor function of PMN-MDSCs, this did not rely on STAT1 signaling or NO production. Finally, MO-MDSCs were shown to be potential precursors of highly antiproliferative NO-producing mature macrophages. However, distinct tumors differentially regulated this inherent MO-MDSC differentiation program, indicating that this phenomenon was tumor driven. Overall, our data refine tumor-induced MDSC functions by uncovering mechanistically distinct MDSC subpopulations, potentially relevant for MDSC-targeted therapies.