Both cancer‐related inflammation and tumor‐induced immune suppression are associated with expansion of myeloid cell subsets including myeloid‐derived suppressor cells. However, little known regarding characteristics of myeloid cells in patients with bladder cancer. In this study, we analyzed myeloid cells from peripheral blood (PBMC) and tumor tissue that were collected from patients with superficial noninvasive and invasive urothelial carcinomas. Our results demonstrate that PBMC from bladder cancer patients contain two major CD11b myeloid cell subsets: granulocyte‐type CD15^high CD33^low cells and monocyte‐type CD15^low CD33^high cells. The number of circulating granulocytic but not monocytic myeloid cells in cancer patients was markedly increased when compared to healthy individuals. Both myeloid cell subsets from cancer patients were highly activated and produced substantial amounts of proinflammatory chemokines/cytokines including CCL2, CCL3, CCL4, G‐CSF, IL‐8 and IL‐6. Granulocytic myeloid cells were able to inhibit in vitro T cell proliferation through induction of CD4⁺Foxp3⁺ T regulatory cells. Analysis of bladder cancer tissues revealed that tumors were infiltrated with monocyte–macrophage CD11b⁺HLA‐DR⁺ and granulocytic CD11b⁺CD15⁺HLA‐DR^‐ myeloid cells. Collectively, this study identifies myeloid cell subsets in patients with bladder cancer. We demonstrate that these highly activated inflammatory myeloid cells represent a source of multiple chemokines/cytokines and may contribute to inflammation and immune dysfunction in bladder cancer.