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Patients with anaplastic thyroid cancer (ATC) have an extremely poor prognosis despite multimodal therapy with surgery and chemoradiation. Lenvatinib, a multi-targeted tyrosine kinase inhibitor, as well as checkpoint inhibitors targeting the programmed cell death pathway, have proven effective in some patients with advanced thyroid cancer. Combination of these therapies is a potential means to boost effectiveness and minimize treatment resistance in ATC. We utilized our novel immunocompetent murine model of orthotopic ATC to demonstrate that lenvatinib led to significant tumor shrinkage and increased survival, while combination therapy led to dramatic improvements in both. Lenvatinib monotherapy increased tumor-infiltrating macrophages, CD8+ T-cells, regulatory T-cells, and most notably, polymorphonuclear myeloid derived suppressor cells (PMN-MDSCs). While both combination therapies led to further increases in CD8+ T-cells, only the lenvatinib and anti-PD-1 combination decreased PMN-MDSCs. PMN-MDSC expansion was also seen in the blood of mice and one patient receiving lenvatinib therapy for ATC. RNA-Seq of the ATC cell line used in our mouse model demonstrated that lenvatinib has multifaceted effects on angiogenesis, response to hypoxia, the epithelial-to-mesenchymal transition, and on multiple pathways implicated in inflammation and host immunity. Combination of lenvatinib with anti-Gr-1 antibody ameliorated lenvatinib's expansion of MDSCs and significantly improved lenvatinib's anti-tumor effect. These data suggest that MDSCs play a negative role in ATC's response to lenvatinib and support future study of their role as a potential biomarker and treatment target.