Bladder cancer (BC) is the second most frequent cancer of the genitourinary system. The most successful therapy since the 1970s has consisted of intravesical instillations of Bacillus Calmette–Guérin (BCG) in which the tumor microenvironment (TME), including macrophages, plays an important role. However, some patients cannot be treated with this therapy due to comorbidities and severe inflammatory side effects. The overexpression of histone deacetylases (HDACs) in BC has been correlated with macrophage polarization together with higher tumor grades and poor prognosis. Herein we demonstrated that phenylbutyrate acid (PBA), a HDAC inhibitor, acts as an antitumoral compound and immunomodulator. In BC cell lines, PBA induced significant cell cycle arrest in G1, reduced stemness markers and increased PD-L1 expression with a corresponding reduction in histone 3 and 4 acetylation patterns. Concerning its role as an immunomodulator, we found that PBA reduced macrophage IL-6 and IL-10 production as well as CD14 downregulation and the upregulation of both PD-L1 and IL-1β. Along this line, PBA showed a reduction in IL-4-induced M2 polarization in human macrophages. In co-cultures of BC cell lines with human macrophages, a double-positive myeloid–tumoral hybrid population (CD11b+EPCAM+) was detected after 48 h, which indicates BC cell–macrophage fusions known as tumor hybrid cells (THC). These THC were characterized by high PD-L1 and stemness markers (SOX2, NANOG, miR-302) as compared with non-fused (CD11b−EPCAM+) cancer cells. Eventually, PBA reduced stemness markers along with BMP4 and IL-10. Our data indicate that PBA could have beneficial properties for BC management, affecting not only tumor cells but also the TME.