ARG1, expressed by human PMNs, inhibits T cell proliferation by depleting extracellular l-arginine. Here, we report that ARG1, released from gelatinase granules by PMNs, is inactive at physiological pH unless activated by factor(s) stored in azurophil granules. Whereas ARG1 exocytosis was induced by TNF-α or ionomycin, only the latter mediated the release of both granules, resulting in extracellular ARG enzyme activity at physiological pH. Furthermore, after fractionation of the different classes of granules, only the mixture of gelatinase and azurophil granules resulted in ARG1 activity at physiological pH. The use of protease inhibitors indicated the involvement of a PMSF- and leupeptin-susceptible serine protease in ARG1 processing and activation. Finally, the supernatant of viable PMNs undergoing frustrated phagocytosis, which mediates gelatinase and azurophil granule release, inhibited T cell proliferation through ARG-dependent mechanisms. In vivo, high ARG1 concentrations and increased ARG enzyme activity, sufficient to inhibit T cell proliferation, were observed in synovial fluids from RA. These findings suggest that PMNs, recruited at sites of immune complex deposition, induce ARG1-dependent immune suppression through concomitant exocytosis of gelatinase and azurophil granules.