The immunosuppressive state of tumour-bearing hosts is attributable, at least in part, to myeloid-derived suppressor cells (MDSC). However, the role of MDSC in physiological conditions and diseases other than cancer has not been addressed. As the liver is a tolerogenic organ, the present study attempted to localize and assess functions of hepatic MDSC in a normal liver and in a murine model of chronic hepatitis B virus (HBV) infection. MDSC was identified in the liver of normal mice and HBV transgenic mice (TM) as CD11b⁺ Gr1⁺ cells by dual-colour flow cytometry. Highly purified populations of MDSC and their subtypes were isolated by fluorescence-activated cell sorting. The functions of MDSC and their subtypes were evaluated in allogenic mixed lymphocyte reaction (MLR) and hepatitis B surface antigen (HBsAg)-specific T cell proliferation assays. Normal mice-derived liver MDSC, but not other myeloid cells (CD11b⁺ Gr1⁻), suppressed T cell proliferation in allogenic MLR in a dose-dependent manner. Alteration of T cell antigens and impaired interferon-γ production seems to be related to MDSC-induced immunosuppression. In HBV TM, the frequencies of liver MDSC were about twice those of normal mice liver (13·6 ± 3·2% versus 6·05 ± 1·21%, n = 5, P < 0·05). Liver-derived MDSC from HBV TM also suppressed proliferative capacities of allogenic T cells and HBsAg-specific lymphocytes. Liver MDSC may have a critical role in maintaining homeostasis during physiological conditions. As liver MDSC had immunosuppressive functions in HBV TM, they may be a target of immune therapy in chronic HBV infection.