Severe sepsis is one of the leading causes of death worldwide. High mortality rates in sepsis are frequently associated with neutropenia. Despite the central role of neutrophils in innate immunity, the mechanisms causing neutropenia during sepsis remain elusive. Here, we show that neutropenia is caused in part by apoptosis and is sustained by a block of hematopoietic stem cell (HSC) differentiation. Using a sepsis murine model, we found that the human opportunistic bacterial pathogen Pseudomonas aeruginosa caused neutrophil depletion and expansion of the HSC pool in the bone marrow. “Septic” HSCs were significantly impaired in competitive repopulation assays and defective in generating common myeloid progenitors and granulocyte-monocyte progenitors, resulting in lower rates of myeloid differentiation in vitro and in vivo. Delayed myeloid-neutrophil differentiation was further mapped using a lysozyme–green fluorescent protein (GFP) reporter mouse. Pseudomonas's lipopolysaccharide was necessary and sufficient to induce myelosuppresion and required intact TLR4 signaling. Our results establish a previously unrecognized link between HSC regulation and host response in severe sepsis and demonstrate a novel role for TLR4.