Severe COVID-19 presents with a distinct immunological profile, characterized by elevated neutrophil and reduced lymphocyte counts, seen commonly in fungal and bacterial infections. This study demonstrates that patients hospitalized with COVID-19 show evidence of neutrophil degranulation and have increased expression of neutrophil surface lectin-like oxidized low-density lipoprotein receptor-1 (LOX-1), a marker of polymorphonuclear myeloid-derived suppressor cells (PMN-MDSCs). Both early LOX-1 and programmed death-ligand 1 (PD-L1) expression on neutrophils were associated with development of severe disease. To determine whether tissue damage or inflammation is required to induce PMN-MDSCs or whether severe acute respiratory syndrome coronavirus 2 (SARS-CoV-2) directly activates neutrophils to become PMN-MDSCs, we incubated healthy human neutrophils with SARS-CoV-2. SARS-CoV-2 rapidly induced LOX-1 surface expression in healthy neutrophils independent of productive infection. LOX-1 induction was dependent on granule exocytosis and promoted up-regulation of reactive oxygen species, CD63, and PD-L1, enabling LOX-1+ neutrophils to suppress autologous T cell proliferation in vitro. These results support a role for PMN-MDSCs in mediating severe COVID-19, and inhibition of PD-L1 represents a potential therapeutic strategy for enhancing the immune response in acute SARS-CoV-2 infection.