We evaluated neoadjuvant ipilimumab in patients with surgically operable regionally advanced melanoma in order to define markers of activity in the blood and tumor as assessed at baseline (before ipilimumab) and early on-treatment. Patients were treated with ipilimumab (10 mg/kg intravenously every 3 weeks ×2 doses) bracketing surgery. Tumor and blood biospecimens were obtained at baseline and at surgery. Flow cytometry and immunohistochemistry for select biomarkers were performed. Thirty five patients were enrolled; IIIB (3; N2b), IIIC (32; N2c, N3), IV (2). Worst toxicities included Grade 3 diarrhea/colitis (5; 14%), hepatitis (2; 6%), rash (1; 3%), elevated lipase (3; 9%). Median follow up was 18 months: among 33 evaluable patients, median progression free survival (PFS) was 11 months, 95% CI (6.2-19.2). There was a significant decrease in circulating myeloid derived suppressor cells (MDSC). Greater decrease in circulating monocyte gate MDSC Lin1-/HLA-DR-/CD33⁺/CD11b⁺ was associated with improved PFS (p = 0.03). There was a significant increase in circulating regulatory T cells (Treg; CD4⁺CD25hi⁺Foxp3⁺) that, unexpectedly, was associated with improved PFS (HR = 0.57; p = 0.034). Baseline evidence of fully activated type I CD4⁺ and CD8⁺ antigen-specific T cell immunity against cancer-testis (NY-ESO-1) and melanocytic lineage (MART-1, gp100) antigens was detected and was significantly potentiated after ipilimumab. In tumor, there was a significant increase in CD8⁺ T cells after ipilimumab (p = 0.02). Ipilimumab induced increased tumor infiltration by fully activated (CD69⁺) CD3⁺/CD4⁺ and CD3⁺/CD8⁺ T cells with evidence of induction/potentiation of memory T cells (CD45RO⁺). The change in Treg observed within the tumor showed an inverse relationship with clinical benefit and greater decrease in tumor MDSC subset Lin1-/HLA-DR-/CD33⁺/CD11b⁺ was associated with improved PFS at one year. Neoadjuvant evaluation revealed a significant immunomodulating role for ipilimumab on Treg, MDSC and effector T cells in the circulation and tumor microenvironment that warrants further pursuit in the quest for optimizing melanoma immunotherapy.