Arginase-1–producing MDSC derived from bone marrow progenitors prevent GVHD. Nonseparated bone marrow cells are cultured with GM-CSF and G-CSF for 3 days to generate MDSC and then an additional day with IL-13 to produce high levels of arginase-1 in the MDSC (I). These MDSC then suppress alloreactive T cells primarily through arginase-1 production. As an alternative pathway, pegylated-arginase-1 (PEG-Arg1) can be used to inhibit T-cell alloreactivity (II).