IL-10 functions as a suppressor of colitis and colitis-associated colon cancer, but it is also a risk locus associated with ulcerative colitis. The mechanism underlying the contrasting roles of IL-10 in inflammation and colon cancer is unknown. We report here that inflammation induces the accumulation of CD11b⁺Gr1⁺ myeloid-derived suppressor cells (MDSCs) that express high levels of IL-10 in colon tissue. IL-10 induces the activation of STAT3 that directly binds to the Dnmt1 and Dnmt3b promoters to activate their expression, resulting in DNA hypermethylation at the Irf8 promoter to silence IRF8 expression in colon epithelial cells. Mice with Irf8 deleted in colonic epithelial cells exhibit significantly higher inflammation-induced tumor incidence. Human colorectal carcinomas have significantly higher DNMT1 and DNMT3b and lower IRF8 expression, and they exhibit significantly higher IRF8 promoter DNA methylation than normal colon. Our data identify the MDSC-IL-10-STAT3-DNMT3b-IRF8 pathway as a link between chronic inflammation and colon cancer initiation.