Steady-state hematopoiesis is altered on infection, but the cellular and molecular mechanisms driving these changes are largely unknown. Modulation of hematopoiesis is essential to increase the output of the appropriate type of effector cell required to combat the invading pathogen. In the present study, we demonstrate that the pro-inflammatory cytokine IFNγ is involved in orchestrating inflammation-induced myelopoiesis. Using both mouse models and in vitro assays, we show that IFNγ induces the differentiation of monocytes over neutrophils at the level of myeloid progenitors. Infection with lymphocytic choriomeningitis virus induces monopoiesis in wild-type mice, but causes increased neutrophil production in IFNγ^−/− mice. We demonstrate that IFNγ enhances the expression of the monopoiesis-inducing transcription factors IRF8 and PU.1 in myeloid progenitor cells, whereas it reduces G-CSF–driven neutrophil differentiation via a SOCS3-dependent inhibition of STAT3 phosphorylation. These results establish a critical role for IFNγ in directing monocyte versus neutrophil development during immune activation.