Myeloid-derived suppressor cells (MDSCs) are a heterogeneous, immature myeloid cell population with the ability to suppress immune responses. MDSCs have been characterized in infections, inflammatory diseases, and solid tumors; however, their presence and role in the tumor-promoting, immune-suppressive microenvironment in hematologic malignancies remains unclear. We assessed the presence, frequency, and functional characteristics of MDSCs in patients with newly diagnosed, relapsed, and relapsed/refractory multiple myeloma (MM) compared with healthy donors. Additionally, we evaluated the immunomodulatory effects of lenalidomide and bortezomib on MDSCs in MM. CD11b⁺CD14^-HLA-DR^-/lowCD33⁺CD15⁺ MDSCs were significantly increased in both the peripheral blood and the bone marrow of patients with active MM compared with healthy donors. Furthermore, MDSCs induced MM growth while suppressing T-cell–mediated immune responses. Conversely, MM cells induced the development of MDSCs from healthy donor peripheral blood mononuclear cells, confirming a bidirectional interaction between MDSCs and MM cells and immune effector cells. Our results further suggest that MDSCs may be associated with the activity of disease in MM. Importantly, our studies suggest that inhibition of the tumor-promoting and immune-suppressive functions of MDSCs in MM may represent a promising novel immune-based therapeutic strategy.