Abstract Arginine metabolism plays a significant role in regulating cell function, affecting tumor growth and metastatization. To study the effect of the arginine-catabolizing enzyme Arginase1 (ARG1) on tumor microenvironment, we generated a mouse model of mammary carcinogenesis by crossbreeding a transgenic mouse line overexpressing ARG1 in macrophages (FVBArg+/+) with the MMTV-Neu mouse line (FVBNeu+/+). This double transgenic line (FVBArg+/−;Neu+/+) showed a significant shortening in mammary tumor latency, and an increase in the number of mammary nodules. Transfer of tumor cells from FVBNeu+/+ into either FVB wild type or FVBArg+/+ mice resulted in increase regulatory T cells in the tumor infiltrate, suggestive of an impaired antitumor immune response. However, we also found increased frequency of tumor stem cells in tumors from FVBArg+/−;Neu+/+ transgenic compared with FVBNeu+/+ mice, suggesting that increased arginine metabolism in mammary tumor microenvironment may supports the cancer stem cells niche. We provide in vivo evidence of a novel, yet unexploited, mechanism through which ARG1 may contribute to tumor development.