The goal of the study was to elucidate the cellular and molecular mechanisms by which a clinically applicable immune tolerance regimen of combined bone marrow and heart transplants in mice results in mixed chimerism and graft acceptance. The conditioning regimen of lymphoid irradiation and anti-T cell antibodies changed the balance of cells in the lymphoid tissues to create a tolerogenic microenvironment favoring the increase of natural killer T (NKT) cells, CD4+CD25+ Tregs, and Gr-1+CD11b+ myeloid derived suppressor cells (MDSCs), over conventional T cells. The depletion of MDSCs abrogated chimerism and tolerance, and add back of these purified cells was restorative. The conditioning regimen activated the MDSCs as judged by the increased expression of arginase-1, IL-4Rα, and PDL1, and the activated cells gained the capacity to suppress the proliferation of conventional T cells to alloantigens in the mixed leukocyte reaction. MDSC activation was dependent on the presence of host invariant NKT cells. The conditioning regimen polarized the host invariant NKT cells toward IL-4 secretion, and MDSC activation was dependent on IL-4. In conclusion, there was a requirement for MDSCs for chimerism and tolerance, and their suppressive function was dependent on their interactions with NKT cells and IL-4.