MicroRNAs are abundant in animal genomes and have been predicted to have important roles in a broad range of gene expression programmes. Despite this prominence, there is a dearth of functional knowledge regarding individual mammalian microRNAs. Using a loss-of-function allele in mice, we report here that the myeloid-specific microRNA-223 (miR-223) negatively regulates progenitor proliferation and granulocyte differentiation and activation. miR-223 (also called Mirn223) mutant mice have an expanded granulocytic compartment resulting from a cell-autonomous increase in the number of granulocyte progenitors. We show that Mef2c, a transcription factor that promotes myeloid progenitor proliferation, is a target of miR-223, and that genetic ablation of Mef2c suppresses progenitor expansion and corrects the neutrophilic phenotype in miR-223 null mice. In addition, granulocytes lacking miR-223 are hypermature, hypersensitive to activating stimuli and display increased fungicidal activity. As a consequence of this neutrophil hyperactivity, miR-223 mutant mice spontaneously develop inflammatory lung pathology and exhibit exaggerated tissue destruction after endotoxin challenge. Our data support a model in which miR-223 acts as a fine-tuner of granulocyte production and the inflammatory response.