Immunosuppressive CD11b(+)Gr1(+) myeloid-derived suppressor cells and TGF-β have been shown to negatively regulate host immunity against allografts. Our results demonstrated that Smad3-deficient mice or mice reconstituted with Smad3-deficient hematopoietic cells rejected allogeneic skin or heart grafts in a significantly slower manner compared with littermates or wild-type (WT) control mice. Transplanted Smad3(-/-) recipients produced markedly less anti-donor IgG Abs, especially IgG1 and IgG2b subclasses. T cells in alloskin-grafted Smad3-deficient mice were more likely to participate in a Th2-type immune response, as evidenced by more Th2-specific transcription factor, GATA3 expression, and increased IL-4 and IL-10 production, as well as less Th1-specific transcription factor, T-bet expression, and decreased IL-2 and IFN-γ production. More CD11b(+)Gr1(+) neutrophil infiltration and less monocyte/macrophage and T cell infiltration in allografts were observed in Smad3(-/-) recipients compared with WT recipients. Increased CXCL1 and CXCL2 as well as decreased CCL3, MCP-1, and RANTES chemokines in allografts of Smad3(-/-) recipients were consistently detected by real-time PCR. Further studies indicated that the increased CD11b(+)Gr1(+) myeloid cells in Smad3-deficient mice were immunosuppressive and responsible for the delayed allograft rejection mainly via an NO-dependent pathway. Thus, this study identifies Smad3 as an intrinsic negative regulator that critically inhibits the differentiation and function of immunosuppressive CD11b(+)Gr1(+) myeloid-derived suppressor cells.