Specific mechanisms by which tumor-infiltrating lymphocytes (TIL) become dysfunctional remain poorly understood. Here, we employed a two-pronged approach using single-cell mass cytometry and tissue imaging technologies to dissect TILs from 25 patients with resectable and 35 patients with advanced non–small cell lung cancer (NSCLC). We identified a burned-out CD8+ TIL subset (Ebo) that specifically accumulated within the tumor microenvironment (TME) but not in adjacent nontumoral tissues. Ebo showed the highest expression of proliferation and activation markers but produced the lowest amount of IFNγ and were the most apoptotic CD8+ TIL subset. Using a humanized patient-derived tumor xenograft model, we demonstrated that Ebo expansion occurred within the TME in a PD-1/B7-H1 pathway-dependent manner. Ebo abundance in baseline tumor tissues was associated with resistance to anti-PD therapy in patients with NSCLC. Our study identifies a dysfunctional TIL subset, with distinct features from previously described exhausted T cells, and implies strategies to overcome immunotherapy resistance. Significance: We identified a highly proliferative, overactivated, and apoptotic dysfunctional CD8+ tumor-infiltrating subpopulation that is functionally distinct from previously described exhausted T cells. This population is expanded in lung cancer tissues in a PD-1/B7-H1-dependent manner, and its abundance is associated with resistance to cancer immunotherapy, thus becoming a potential tissue biomarker. This article is highlighted in the In This Issue feature, p. 1601