245 The inability of the host immune system to develop and maintain an effective anti-tumor immune response is one of the main mechanisms of tumor progression. Multiple laboratories have demonstrated that myeloid-derived suppressive cells (MDSC) are active participants in suppression of T lymphocytes during tumor development; however, the mechanisms regulating this suppression are still unclear. MDSC from tumor-bearing animals, isolated from either spleen or from the tumor-microenvironment, were capable of inhibiting antigen-specific T lymphocytes. Interestingly, however, only tumor-derived MDSC were capable of suppressing T cell functions in a non-specific manner. Based on these findings, we set out to investigate the basis for these discrepancies. Our data indicate that MDSC from peripheral lymphoid organs produce high levels of reactive oxygen species (ROS), which are responsible for the observed T cell malfunctions. The hyper-production of ROS by MDSC is a consequence of STAT3 hyper-activation. Splenic MDSC had a significant increase in expression of two critical components of NADPH oxidase: gp91phoxand p47phox. The NADPH oxidase has long been considered a strong source of ROS in myeloid cells and we show that STAT3 may be partially responsible for this up-regulation. MDSC from tumor-microenvironment, in the other hand, generated low levels of ROS and showed decreased expression of NADPH oxidase components. However, mRNA levels of Inducible Nitric Oxide Synthase (iNOS) and Arginase I were dramatically upregulated in tumor-derived MDSC; the upregulation of these two factors was responsible for the non-specific suppression observed in tumor vicinity. We hope that these findings will help to clarify the mechanism of T cell suppression in cancer and to possibly develop new effective cancer treatment.