The immunopathology of COVID-19 remains enigmatic, exhibiting immunodysregulation and T cell lymphopenia. Monocytic myeloid-derived suppressor cells (M-MDSC) are T cell suppressors that expand in inflammatory conditions, but their role in acute respiratory infections remains unclear. We studied blood and airways of COVID-19 patients across disease severity at multiple timepoints. M-MDSC frequencies were elevated in blood but not in nasopharyngeal or endotracheal aspirates of COVID-19 patients compared to controls. M-MDSCs isolated from COVID-19 patients suppressed T cell proliferation and IFNg production partly via an arginase-1 (Arg-1) dependent mechanism. Furthermore, patients showed increased Arg-1 and IL-6 plasma levels. COVID-19 patients had fewer T cells, and displayed downregulated expression of the CD3ζ chain. Ordinal regression showed that early M-MDSC frequency predicted subsequent disease severity. In conclusion, M-MDSCs expand in blood of COVID-19 patients, suppress T cells and strongly associate with disease severity, suggesting a role for M-MDSCs in the dysregulated COVID-19 immune response.