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 resectable and 35 advanced non-small cell lung cancer (NSCLC) patients. We identified a burned-out CD8+ TIL subset (Ebo) that specifically accumulated within the tumor microenvironment (TME), but not in adjacent non-tumoral tissues. Ebo showed the highest expression of proliferation and activation markers, but produced the lowest amount of IFNy 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 NSCLC patients. Our study identifies a dysfunctional TIL subset, with distinct features from previously described exhausted T cells, and implies strategies to overcome immunotherapy resistance.