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Emerging evidence suggests that myeloid‐derived suppressor cells (MDSCs) have great potential as a novel immune intervention modality in the fields of transplantation and autoimmune diseases. Thus far, efforts to develop MDSC‐based therapeutic strategies have been hampered by the lack of a reliable source of MDSCs. Here we show that functional MDSCs can be efficiently generated from mouse embryonic stem (ES) cells and bone marrow hematopoietic stem (HS) cells. In vitro‐derived MDSCs encompass two homogenous subpopulations: CD115 + Ly‐6C +  and CD115 + Ly‐6C −  cells. The CD115 + Ly‐6C +  subset is equivalent to the monocytic Gr‐1 + CD115 + F4/80 +  MDSCs found in tumor‐bearing mice. In contrast, the CD115 + Ly‐6C −  cells, a previously unreported population of MDSCs, resemble the granulocyte/macrophage progenitors developmentally. In vitro, ES‐ and HS‐MDSCs exhibit robust suppression against T‐cell proliferation induced by polyclonal stimuli or alloantigens via multiple mechanisms involving nitric oxide synthase‐mediated NO production and interleukin (IL)‐10. Impressively, they display even stronger suppressive activity and significantly enhance ability to induce CD4 + CD25 + Foxp3 +  regulatory T‐cell development compared with tumor‐derived MDSCs. Furthermore, adoptive transfer of ES‐MDSCs can effectively prevent alloreactive T‐cell‐mediated lethal graft‐versus‐host disease, leading to nearly 82% long‐term survival among treated mice. The successful in vitro generation of MDSCs may represent a critical step toward potential clinical application of MDSCs. S TEM  C ELLS  2010;28:620–632

Development and Function of Myeloid‐Derived Suppressor Cells Generated From Mouse Embryonic and Hematopoietic Stem Cells