We identified the characteristics of myeloid-derived suppressor cells (MDSCs) and investigated their mechanism of induction and their functional role in allograft rejection using a murine corneal allograft model. In mice, MDSCs coexpress CD11b and myeloid differentiation antigen Gr-1. Gr-1CD11b cells infiltrated allografted corneas between 4 d and 4 wk after surgery; however, the frequencies of Gr-1CD11b cells were not different between accepted and rejected allografts or in peripheral blood or BM. Of interest, Gr-1CD11b cells, but not Gr-1CD11b cells, infiltrated the accepted graft early after surgery and expressed high levels of immunosuppressive cytokines, including IL-10, TGF-β, and TNF-related apoptosis-inducing ligand. This population remained until 4 wk after surgery. In vitro, only high dose (>100 ng/ml) of IFN-γ plus GM-CSF could induce immunosuppressive cytokine expression in Gr-1CD11b cells. Furthermore, adoptive transfer of Gr-1CD11b cells reduced T cell infiltration, which improved graft survival. In conclusion, high-dose IFN-γ in allograft areas is essential for development of Gr-1CD11b MDSCs in corneal allografts, and subtle environmental changes in the early period of the allograft can result in a large difference in graft survival.