Previous work by our group showed that transferring bone marrow cells transduced with an autoantigen into nonmyeloablated mice with experimental autoimmune encephalomyelitis induced immune tolerance and improved symptoms of the disease. Because this effect occurred in the absence of molecular chimerism, we hypothesized that the cells responsible did not have repopulating ability and that they were not mediating central but peripheral tolerance mechanisms. In the present study, we analyzed the immunophenotype of the cells that are generated in the transduction cultures and we evaluated the immunosuppressive activity of the main cell subpopulations produced. We show that both granulocytic (CD11b(+) Gr-1(hi)) and monocytic (CD11b(+) Gr-1(lo)) myeloid-derived suppressor cells (G- and M-MDSCs, respectively) are generated during standard 4-day γ-retroviral transduction cultures (representing about 25% and 40% of the total cell output, respectively) and that the effectively transduced cells largely consist of these two cell types. A third cell population representing about 15% of the transduced cells did not express CD45 or hematopoietic lineage markers and expressed mesenchymal stromal cell markers. Transduced total bone marrow cells and sorted M-MDSCs expressed arginase and inducible nitric oxide synthase activities, produced reactive oxygen species, and inhibited antigen-induced T-cell proliferation in vitro. Transgene-expressing MDSCs could be exploited therapeutically to induce tolerance in autoimmune diseases and in gene therapy protocols.