We earlier established that nitric oxide (NO) is protective against severe malaria and that arginine and NO levels are reduced in malaria patients. We now show that an M2-like blood monocyte phenotype is significantly associated with hypoargininemia, NO insufficiency, and disease severity in Tanzanian children with falciparum malaria. Compared to control children (n = 106), children with moderately severe (n = 77) and severe falciparum malaria (n = 129) had significantly higher mononuclear cell arginase 1 mRNA, protein, and enzyme activity; lower NOS2 mRNA; lower plasma arginine; and higher plasma IL-10, IL-13, and IL-4. In addition, monocyte CD206 and CD163 and plasma soluble CD163 were elevated. Multivariate logistic regression analysis revealed a significant correlation of risk of severe malaria with both plasma IL-10 and soluble CD163 levels. Monocyte M2 skewing likely contributes to NO bioinsufficiency in falciparum malaria in children. Treatments that reverse the M2 polarization may have potential as adjunctive treatment for malaria.