Myeloid-derived suppressor cells (MDSCs) play a protective role against neonatal inflammation during the early postnatal period. However, the mechanisms regulating neonatal MDSC function remain to be fully elucidated. In this study, we report that the bile acid receptor farnesoid X receptor (FXR) acts as a positive regulator of neonatal MDSC function. The FDA-approved FXR agonist obeticholic acid (OCA) protects against neonatal sepsis in an FXR-dependent manner. Genetic deficiency of FXR impairs the immunosuppressive and antibacterial functions of MDSCs, thereby exacerbating the severity of neonatal sepsis. Adoptive transfer of MDSCs alleviates sepsis in both Fxr and FxrMrp8-Cre pups. Mechanistic studies revealed that Hif1α, a well-established regulator of MDSCs, is a direct transcriptional target of FXR. In patients with neonatal sepsis, downregulation of FXR and HIF-1α in MDSCs was observed, which was inversely correlated with clinical parameters. These observations demonstrate the importance of FXR in neonatal MDSC function and its therapeutic potential in neonatal sepsis.