Tolerogenic activity of myeloid dendritic cells (DC) has so far been attributed mostly to immature or semi‐mature differentiation stages but never to their precursor cells. Although myeloid suppressor cells (MSC) have been isolated ex vivo, their developmental relationship to DC and their precise phenotype remained elusive. Here, we describe the generation of MSC as myeloid DC precursors with potent suppressive activity on allogeneic and OVA‐specific CD4⁺ and CD8⁺ T cell responses in vitro. These MSC appear transiently in DC cultures of bone marrow (BM) cells after 8–10 days under low GM‐CSF conditions or after 3–4 days under high GM‐CSF conditions. They represent CD11c^– myeloid precursor cells with ring‐shaped nuclei and are Gr‐1^low (i.e. Ly‐6C⁺, Ly‐6G^low), CD11b⁺, CD31⁺, ER‐MP58⁺, asialoGM1⁺ and F4/80⁺. Sorted MSC develop into CD11c⁺ DC within 6 days. Their suppressor activity partially depends on IFN‐γ stimulation. Suppression is mediated through mechanisms requiring cell contact and nitric oxide but is independent of TNF, CD1d and TGF‐β. Together, our data describe the generation of MSC with distinct suppressor mechanisms in vitro preceding their development into immature DC.