Recent reports have shown the involvement of tumor burden as well as GM-CSF in supporting myeloid-derived suppressor cells (MDSC). However, it is not known what progenitor cells may differentiate into MDSC in the presence of GM-CSF, and whether FVBN202 transgenic mouse model of spontaneous breast carcinoma may exhibit distinct subset distribution of CD11b+Gr1+ cells. In addition, it is not known why CD11b+Gr1+ cells derived from tumor-free and tumor-bearing animals exhibit different functions. In this study, we determined that GM-CSF was one of the tumor-derived soluble factors that induced differentiation of CD11b-Gr1- progenitor cells from within monocytic/granulocytic bone marrow cells into CD11b+Gr1+ cells. We also showed that CD11b+Gr1+ cells in FVBN202 mice consisted of CD11b+Ly6G-Ly6C+ suppressive and CD11b+Ly6G+Ly6C+ non-suppressive subsets. Previously reported variations between tumor-free and tumor-bearing animals in the function of their CD11b+Gr1+ cells were found to be due to the variations in the proportion of these two subsets. Therefore, increasing ratios of CD11b+Gr1+ cells derived from tumor-free animals revealed their suppressive activity on T cells, in vitro. Importantly, GM-CSF supported the generation of CD11b+Ly6G-Ly6C+ suppressor subsets that inhibited proliferation as well as anti-tumor function of neu-specific T cells. These findings suggest revisiting the use of GM-CSF for the expansion of dendritic cells, ex vivo, for cell-based immunotherapy or as an adjuvant for vaccines for patients with cancer in whom MDSC play a major role in the suppression of anti-tumor immune responses.