Human immunodeficiency virus (HIV) or simian immunodeficiency virus (SIV) infection causes myelodysplasia, anemia, and accumulation of inflammatory monocytes (CD14 CD16) through largely unknown cellular and molecular pathways. The mouse cells thought to be equivalent to human CD14 CD16 cells are CD11b Gr1 myeloid-derived suppressor cells (MDSC). We used HIV transgenic (Tg) mouse models to study MDSC, namely, CD4C/Nef Tg mice expressing in dendritic cells (DC), pDC, CD4 T, and other mature and immature myeloid cells and CD11c/Nef Tg mice with a more restricted expression, mainly in DC and pDC. Both Tg strains showed expansion of granulocytic and CD11b Gr1 cells with MDSC characteristics. Fetal liver cell transplantation revealed that this expansion was stroma-independent and abrogated in mixed Tg/non-Tg 50% chimera. Tg bone marrow (BM) erythroid progenitors were decreased and myeloid precursors increased, suggesting an aberrant differentiation likely driving CD11b Gr1 cell expansion, apparently cell autonomously in CD4C/Nef Tg mice and likely through a bystander effect in CD11c/Nef Tg mice. Hck was activated in Tg spleen, and Nef-mediated CD11b Gr1 cell expansion was abrogated in Hck/Lyn-deficient Nef Tg mice, indicating a requirement of Hck/Lyn for this Nef function. IL-17 and granulocyte colony-stimulating factor (G-CSF) were elevated in Nef Tg mice. Increased G-CSF levels were normalized in Tg mice treated with anti-IL-17 antibodies. Therefore, Nef expression in myeloid precursors causes severe BM failure, apparently cell autonomously. More cell-restricted expression of Nef in DC and pDC appears sufficient to induce BM differentiation impairment, granulopoiesis, and expansion of MDSC at the expense of erythroid maturation, with IL-17→G-CSF as one likely bystander contributor. HIV-1 and SIV infection often lead to myelodysplasia, anemia, and accumulation of inflammatory monocytes (CD14 CD16), with the latter likely involved in neuroAIDS. We found that some transgenic (Tg) mouse models of AIDS also develop accumulation of mature and immature cells of the granulocytic lineage, decreased erythroid precursors, and expansion of MDSC (equivalent to human CD14 CD16 cells). We identified Nef as being responsible for these phenotypes, and its expression in mouse DC appears sufficient for their development through a bystander mechanism. Nef expression in myeloid progenitors may also favor myeloid cell expansion, likely in a cell-autonomous way. Hck/Lyn is required for the Nef-mediated accumulation of myeloid cells. Finally, we identified G-CSF under the control of IL-17 as one bystander mediator of MDSC expansion. Our findings provide a framework to determine whether the Nef>Hck/Lyn>IL-17>G-CSF pathway is involved in human AIDS and whether it represents a valid therapeutic target.