Infection with hepatitis B virus (HBV) results in disparate degrees of tissue injury: the virus can either replicate without pathological consequences or trigger immune-mediated necroinflammatory liver damage. We investigated the potential for myeloid-derived suppressor cells (MDSCs) to suppress T cell-mediated immunopathology in this setting. Granulocytic MDSCs (gMDSCs) expanded transiently in acute resolving HBV, decreasing in frequency prior to peak hepatic injury. In persistent infection, arginase-expressing gMDSCs (and circulating arginase) increased most in disease phases characterized by HBV replication without immunopathology, whilst L-arginine decreased. gMDSCs expressed liver-homing chemokine receptors and accumulated in the liver, their expansion supported by hepatic stellate cells. We provide in vitro and ex vivo evidence that gMDSCs potently inhibited T cells in a partially arginase-dependent manner. L-arginine-deprived T cells upregulated system L amino acid transporters to increase uptake of essential nutrients and attempt metabolic reprogramming. These data demonstrate the capacity of expanded arginase-expressing gMDSCs to regulate liver immunopathology in HBV infection.