Glucocorticoids (GCs) are the most widely used drugs to prevent transplant rejection; however, it is not yet clear how GCs induce immune tolerance in transplantation. Here, we demonstrate that GCs induce tolerance to corneal allografts in mice through expansion of MHC class II⁻CD11b⁺Ly6C⁺ monocytes in the bone marrow and mobilization of the cells to spleen, draining lymph nodes, and graft site. The GC‐induced CD11b⁺Ly6C⁺ monocytes inhibited T cell proliferation in vitro, and adoptive transfer of the cells improved the survival of corneal allografts. Depletion of CD11b⁺Ly6C⁺ cells in mice during GC treatment abrogated the effects of GCs in prevention of immune rejection. Together, the results identify monocytic myeloid‐derived suppressor cells as crucial mediators of the GC‐induced tolerance in transplantation.