In recent years, immune-based therapies have become an increasingly attractive treatment option for patients with cancer. Cancer immunotherapy is often used in combination with conventional chemotherapy for synergistic effects. The alkylating agent cyclophosphamide (CTX) has been included in various chemoimmunotherapy regimens because of its well-known immunostimulatory effects. Paradoxically, cyclophosphamide can also induce suppressor cells that inhibit immune responses. However, the identity and biologic relevance of these suppressor cells are poorly defined. Here we report that cyclophosphamide treatment drives the expansion of inflammatory monocytic myeloid cells (CD11bLy6ChiCCR2hi) that possess immunosuppressive activities. In mice with advanced lymphoma, adoptive transfer (AT) of tumor-specific CD4 T cells following cyclophosphamide treatment (CTXCD4 AT) provoked a robust initial antitumor immune response, but also resulted in enhanced expansion of monocytic myeloid cells. These therapy-induced monocytes inhibited long-term tumor control and allowed subsequent relapse by mediating functional tolerization of antitumor CD4 effector cells through the PD-1-PD-L1 axis. PD-1/PD-L1 blockade after CTXCD4 AT therapy led to persistence of CD4 effector cells and durable antitumor effects. Depleting proliferative monocytes by administering low-dose gemcitabine effectively prevented tumor recurrence after CTXCD4 AT therapy. Similarly, targeting inflammatory monocytes by disrupting the CCR2 signaling pathway markedly potentiated the efficacy of cyclophosphamide- based therapy. Besides cyclophosphamide, we found that melphalan and doxorubicin can also induce monocytic myeloid suppressor cells. These findings reveal a counter-regulation mechanism elicited by certain chemotherapeutic agents and highlight the importance of overcoming this barrier to prevent late tumor relapse after chemoimmunotherapy. Cancer Res; 74(13); 3441-53.