Human immunodeficiency virus (HIV) or simian immunodeficiency virus (SIV) infection causes myelodysplasia, anemia, and accumulation of inflammatory monocytes (CD14+ CD16+) through largely unknown cellular and mol. pathways. The mouse cells thought to be equivalent to human CD14+ CD16+ cells are CD11b+ Gr1+ myeloid-derived suppressor cells (MDSC). We used HIV transgenic (Tg) mouse models to study MDSC, namely, CD4C/Nef Tg mice expressing nef in dendritic cells (DC), pDC, CD4+ T, and other mature and immature myeloid cells and CD11c/Nef Tg mice with a more restricted expression, mainly in DC and pDC. Both Tg strains showed expansion of granulocytic and CD11b+ Gr1low/int cells with MDSC characteristics. Fetal liver cell transplantation revealed that this expansion was stroma-independent and abrogated in mixed Tg/non-Tg 50% chimera. Tg bone marrow (BM) erythroid progenitors were decreased and myeloid precursors increased, suggesting an aberrant differentiation likely driving CD11b+ Gr1+ cell expansion, apparently cell autonomously in CD4C/Nef Tg mice and likely through a bystander effect in CD11c/Nef Tg mice. Hck was activated in Tg spleen, and Nef-mediated CD11b+ Gr1+ cell expansion was abrogated in Hck/Lyn-deficient Nef Tg mice, indicating a requirement of Hck/Lyn for this Nef function. IL-17 and granulocyte colony-stimulating factor (G-CSF) were elevated in Nef Tg mice. Increased G-CSF levels were normalized in Tg mice treated with anti-IL-17 antibodies. Therefore, Nef expression in myeloid precursors causes severe BM failure, apparently cell autonomously. More cell-restricted expression of Nef in DC and pDC appears sufficient to induce BM differentiation impairment, granulopoiesis, and expansion of MDSC at the expense of erythroid maturation, with IL-17→G-CSF as one likely bystander contributor.