Basic helix-loop-helix (bHLH) transcription factors play critical roles in lymphoid and erythroid development; however, little is known about their role in myeloid lineage development. In this study, we identify the bHLH transcription factor Twist-2 as a key negative regulator of myeloid lineage development, as manifested by marked increases in mature myeloid populations of macrophages, neutrophils, and basophils in Twist-2-deficient mice. Mechanistic studies demonstrate that Twist-2 inhibits the proliferation as well as differentiation of granulocyte macrophage progenitors (GMP) by interacting with and inhibiting the transcription factors Runx1 and C/EBPalpha. Moreover, Twist-2 was found to have a contrasting effect on cytokine production: inhibiting the production of proinflammatory cytokines such as interleukin-12 (IL-12) and interferon-gamma (IFNgamma) while promoting the regulatory cytokine IL-10 by myeloid cells. The data from further analyses suggest that Twist-2 activates the transcription factor c-Maf, leading to IL-10 expression. In addition, Twist-2 was found to be essential for endotoxin tolerance. Thus, this study reveals the critical role of Twist-2 in regulating the development of myeloid lineages, as well as the function and inflammatory responses of mature myeloid cells.