Myeloid-derived suppressor cells (MDSCs) are a naturally occurring immune regulatory population associated with inhibition of ongoing inflammatory responses. In vitro generation of MDSCs from bone marrow has been shown to enhance survival in an acute model of lethal graft-versus-host disease (GVHD). However, donor MDSC infusion only partially ameliorates GVHD lethality. In order to improve the potential therapeutic benefit and ultimately survival outcomes, we set out to investigate the fate of MDSCs after transfer in the setting of acute GVHD (aGVHD). MDSCs transferred to lethally irradiated recipients of allogeneic donor hematopoietic grafts are exposed to an intense inflammatory environment associated with aGVHD, which we now show directly undermines their suppressive capacity. Under a conditioning regimen and GVHD inflammatory settings, MDSCs rapidly lose suppressor function and their potential to inhibit GVHD lethality, which is associated with their induced conversion toward a mature inflammasome-activated state. We find even brief in vitro exposure to inflammasome-activating mediators negates the suppressive potential of cultured murine and human-derived MDSCs. Consistent with a role for the inflammasome, donor MDSCs deficient in the adaptor ASC (apoptosis-associated speck-like protein containinga CARD), which assembles inflammasome complexes, conferred improved survival of mice developing GVHD compared with wild-type donor MDSCs. These data suggest the use of MDSCs as a therapeutic approach for preventing GVHD and other systemic inflammatory conditions will be more effective when combined with approaches limiting in vivo MDSC inflammasome activation, empowering MDSCs to maintain their suppressive potential. 2015 by The American Society of Hematology.