The immunopathology of coronavirus disease 2019 (COVID-19) remains enigmatic, causing immunodysregulation and T cell lymphopenia. Monocytic myeloid-derived suppressor cells (M-MDSCs) are T cell suppressors that expand in inflammatory conditions, but their role in acute respiratory infections remains unclear. We studied the blood and airways of patients with COVID-19 across disease severities at multiple time points. M-MDSC frequencies were elevated in blood but not in nasopharyngeal or endotracheal aspirates of patients with COVID-19 compared with healthy controls. M-MDSCs isolated from patients with COVID-19 suppressed T cell proliferation and IFN-γ production partly via an arginase 1–dependent (Arg-1–dependent) mechanism. Furthermore, patients showed increased Arg-1 and IL-6 plasma levels. Patients with COVID-19 had fewer T cells and downregulated expression of the CD3ζ chain. Ordinal regression showed that early M-MDSC frequency predicted subsequent disease severity. In conclusion, M-MDSCs expanded in the blood of patients with COVID-19, suppressed T cells, and were strongly associated with disease severity, indicating a role for M-MDSCs in the dysregulated COVID-19 immune response.