Although the presence of tumor-infiltrating lymphocytes (TILs) indicates the generation of an endogenous antitumor immune response, immune regulatory pathways can subvert the effector phase and enable tumor escape. Negative regulatory pathways include extrinsic suppression mechanisms but also a T cell-intrinsic dysfunctional state. A more detailed study has been hampered by a lack of cell surface markers defining dysfunctional TILs, and it is clear that PD-1 alone is not sufficient. Our laboratory previously identified the transcription factor Egr2 as a critical component in controlling the anergic state in vitro. Identified Egr2 target genes were used as a means to focus on cell surface markers that might characterize the dysfunctional state, and those with robust staining by flow cytometric analysis were applied towards study of CD8+ T cells in the tumor microenvironment. We found that the Egr2-driven cell surface proteins, LAG-3 and 4-1BB, identify dysfunctional tumor antigen-specific CD8+ TILs. Co-expression of 4-1BB and LAG-3 was seen on a majority of CD8+ T cells within the tumor microenvironment but not in secondary lymphoid organs. Functional analysis revealed defective production of IL-2 and TNF-α, while Treg-recruiting chemokines and IFN-γ remained highly expressed. Transcriptional and flow cytometric characterization identified co-expression of multiple additional co-stimulatory and co-inhibitory receptors by this subset of TIL. Administration of anti-LAG-3 plus anti-4-1BB mAbs was therapeutic against tumors in vivo, which correlated with reversal of TIL dysfunction and restoration of an effector phenotype. The striking feature of heightened and prolonged production of IFN-γ by T cells within the tumor led us to investigate the role IFN-γ played during the setting of chronic T cell activation within the tumor site. While IFN-γ has been reported to be necessary for tumor elimination, IFN-γ also mediates a form of adaptive resistance by upregulating PD-L1 and indoleamine-2,3-dioxygenase (IDO) in the tumor microenvironment. On the other hand, loss of IFN-γ sensing by tumor cells has been proposed to lead to secondary resistance to checkpoint blockade therapy. Therefore, to determine whether the effects of IFN-γ on tumor cells are pro-immune or immune regulatory we rendered tumor cells insensitive to IFN-γ by selectively mutating the IFNγR2 or Jak1 genes in tumor cells. When implanted into mice, IFN-γ-insensitive tumors were better controlled in vivo. This phenotype was true across several tumor models and was not due to off-target effects from CRISPR/Cas9 mutagenesis. Spontaneous control of mutant tumors was dependent on CD8+ T cells and was associated with a marked increase in the frequency of tumor antigen-specific CD8+ T cells. The mechanism of improved tumor control was mapped to defective PD-L1 upregulation in response to IFN-γ produced by CD8+ TILs, which phenocopied PD-L1 blockade. Retroviral-mediated re-expression of PD-L1 on IFN-γ-insensitive tumor cells was sufficient to restore progressive tumor growth. These results indicate that in settings in which the major source of PD-L1 is on tumor cells within the tumor microenvironment, then the dominant effect of IFN-γ on cancer cells can be immunoregulatory.