Abstract The hepatitis C virus (HCV) infects ∼200 million people worldwide. The majority of infected individuals develop persistent infection, resulting in chronic inflammation and liver disease, including cirrhosis and hepatocellular carcinoma. The ability of HCV to establish persistent infection is partly due to its ability to evade the immune response through multiple mechanisms, including suppression of NK cells. NK cells control HCV replication during the early phase of infection and regulate the progression to chronic disease. In particular, IFN-γ produced by NK cells limits viral replication in hepatocytes and is important for the initiation of adaptive immune responses. However, NK cell function is significantly impaired in chronic HCV patients. The cellular and molecular mechanisms responsible for impaired NK cell function in HCV infection are not well defined. In this study, we analyzed the interaction of human NK cells with CD33+ PBMCs that were exposed to HCV. We found that NK cells cocultured with HCV-conditioned CD33+ PBMCs produced lower amounts of IFN-γ, with no effect on granzyme B production or cell viability. Importantly, this suppression of NK cell–derived IFN-γ production was mediated by CD33+CD11bloHLA-DRlo myeloid-derived suppressor cells (MDSCs) via an arginase-1–dependent inhibition of mammalian target of rapamycin activation. Suppression of IFN-γ production was reversed by l-arginine supplementation, consistent with increased MDSC arginase-1 activity. These novel results identify the induction of MDSCs in HCV infection as a potent immune evasion strategy that suppresses antiviral NK cell responses, further indicating that blockade of MDSCs may be a potential therapeutic approach to ameliorate chronic viral infections in the liver.