Tumor‐associated neutrophils (TANs) play a crucial role in tumor development and progression in the cancer microenvironment. Despite increased understanding of TAN contributions to hepatocellular carcinoma (HCC) progression and prognosis, the direct interaction between TANs and HCC cells is not fully understood. In this study, we tested the effect of TANs on HCC cells in vitro and in vivo and investigated the mechanism of interaction between them. Our results showed that TANs secreted bone morphogenetic protein 2 and transforming growth factor beta 2 and triggered microRNA 301b‐3p (miR‐301‐3p) expression in HCC cells, subsequently suppressed gene expression of limbic system–associated membrane protein (LSAMP) and CYLD lysine 63 deubiquitinase (CYLD), and increased stem cell characteristics in HCC cells. These TAN‐induced HCC stem‐like cells were hyperactive in nuclear factor kappa B signaling, secreted higher levels of chemokine (C‐X‐C motif) ligand 5 (CXCL5), and recruited more TAN infiltration, suggesting a positive feedback loop. In clinical HCC samples, increased TANs correlated with elevated miR‐301b‐3p, decreased LSAMP and CYLD expression, and increased nuclear p65 accumulation and CXCL5 expression, all of which predicted patient outcome. Conclusion: Our work identified a positive feedback loop governing cancer stem‐like cells and TANs in HCC that controls tumor progression and patient outcome.