Tumor-targeted delivery of immune stimulatory genes, such as pro-inflammatory cytokines and suicide genes, has shown to cure mouse models of cancer. Total tumor eradication was also found to occur despite subtotal tumor engineering; a phenomenon coined the “bystander effect”. The bystander effect in immune competent animals arises mostly from recruitment of a cancer lytic cell-mediated immune response to local and distant tumor cells which escaped gene modification. We have previously described a Granulocyte–Macrophage Colony Stimulating Factor (GM-CSF) and Interleukin 2 (IL2) fusokine (aka GIFT2) which serves as a potent anticancer cytokine and it here served as a means to understand the mechanistic underpinnings to the immune bystander effect in an immune competent model of B16 melanoma. As expected, we observed that GIFT2 secreted by genetically engineered B16 tumor cells induces a bystander effect on non modified B16 cells, when admixed in a 1:1 ratio. However, despite keeping the 1:1 ratio constant, the immune bystander effect was completely lost as the total B16 cell number was increased from 10⁴ to 10⁶ which correlated with a sharp reduction in the number of tumor-infiltrating NK cells. We found that B16 secrete biologically active TGFβ which in turn inhibited GIFT2 dependent immune cell proliferation in vitro and downregulated IL-2Rβ expression and IFNγ secretion by NK cells. In vivo blockade of B16 originating TGFβ significantly improved the immune bystander effect arising from GIFT2. We propose that cancer gene immunotherapy of pre-established tumors will be enhanced by blockade of tumor-derived TGFβ.