Susceptibility to infection during the neonatal period and reduced control of inflammation in neonates are attributed to immunosuppression persisting from fetal life. Myeloid‐derived suppressor cells (MDSCs) are immature myeloid progenitors with suppressive activity and increased numbers in cord blood. We hypothesized that MDSCs contribute to innate host defence in neonates, paralleled by anti‐inflammatory signalling.Phagocytic activity, infection induced apoptosis, expression of B‐cell lymphoma (Bcl)‐2 family proteins, production of reactive oxygen species (ROS), cytokine production and T‐cell suppression of neonatal granulocytic‐MDSCs (G‐MDSCs) after infection with Escherichia coli (E. coli) were compared to neonatal autologous mature polymorphonuclear leukocytes (PMNs). Phagocytic activity of G‐MDSCs upon infection with E. coli was equal to that of mature PMNs, however, apoptosis of G‐MDSCs was decreased. G‐MDSCs showed enhanced Bcl‐2‐expression and lower ROS production compared to PMNs. Inhibition of Bcl‐2 reduced apoptosis rates of G‐MDSCs to that of mature PMNs. Induction of anti‐inflammatory transforming growth factor beta (TGF‐β) was enhanced, while pro‐inflammatory IL‐8 decreased in G‐MDSCs compared to PMNs. Infected G‐MDSCs strongly suppressed proliferation of T cells. We show a direct role of G‐MDSCs for anti‐bacterial host defence. Prolonged survival and anti‐inflammatory capacity suggest that G‐MDSCs are important for immune‐regulation after bacterial infection.