MDSCs are a group of cells with potent immune-suppressive activity. These cells accumulate in many pathologic conditions and play a major role in the regulation of immune responses. The nature of MDSC remains highly debatable. In cancer, most MDSCs are represented by cells with granulocytic phenotype and morphology, G-MDSC. The relationship between G-MDSCs and Neu remains unclear. In this study, we have found that G-MDSCs, from tumor-bearing, and Neu, from tumor-free, mice share a common morphology and phenotype. However, in contrast to Neu, a substantial proportion of G-MDSCs expressed M-CSFR and a CD244 molecule. Neu had significantly higher phagocytic activity, expression of lysosomal proteins, and TNF-α than corresponding G-MDSCs, which had significantly higher activity of arginase, MPO, and ROS. In contrast to G-MDSC, neither rested nor mobilized Neu suppressed T cells. G-MDSC survived 2 days in culture in the presence of GM-CSF and within 24 h, became phenotypic and functionally similar to Neu. Tumor-associated G-MDSC shared most characteristics of splenic G-MDSC, rather then Neu. These data suggest that in cancer, despite morphological and phenotypic similarities, G-MDSCs are functionally distinct from Neu and are comprised of pathologically activated precursors of Neu.