Purpose: Increased frequencies of myeloid-derived suppressor cells (MDSC) correlate with poor prognosis in patients with cancers. Tumor-derived prostaglandin-E2 (PGE2) plays an important role in inducing MDSCs. However, the detailed mechanisms of this induction remain unknown. To develop targeted therapies for MDSCs, we sought to investigate the molecular basis of PGE2-regulated accumulation of MDSCs and their functional consequence on natural killer (NK) cell activity. Experimental Design: The effects of PGE2 in inducing phenotypic, signaling, and functional alternations on monocytes were analyzed in vitro. Suppression of NK-cell activity by PGE2-treated monocytes was compared with that of freshly isolated CD14+HLA-DRow/monocytic MDSCs (moMDSC) from patients with melanoma. In addition, to explore the in vivo relevance of targeting PGE2 to reduce MDSC-mediated suppression of NK cells, we established a murine model, where tumor cells were disabled from cyclooxygenase-2 (COX-2) production. Results: Patient-derived moMDSCs inhibited NK-cell activity through the production of TGFβ. In vitro, binding of PGE2 to EP2 and EP4 receptors on monocytes activated the p38MAPK/ERK pathway and resulted in elevated secretion of TGFβ. Similar to moMDSCs, PGE2-treated monocytes potently suppressed NK-cell activity through production of TGFβ. Furthermore, silencing COX-2 in murine 4T1 tumor cells reduced the accumulation of CD11b+Gr1+ MDSCs in the spleen, resulting in concomitant improved in vivo clearance of NK-cell sensitive YAC-1 cells. Conclusions: Our results reveal an indispensable role of tumor-derived PGE2 in inducing MDSCs and suggest a favorable outcome of combining COX-2-targeted therapy and adoptive NK-cell transfer in patients with cancer.