B7-H1 is a recently identified B7 family member that, along with one of its receptors, programmed death-1 (PD-1), has been involved in multiple immunopathologic scenarios. However, the nature of B7-H1 and PD-1 in human hepatocellular carcinoma (HCC) remains poorly defined. We investigated the expression and functional relevance of this pathway in patients with HCC. We showed that B7-H1 expression on Kupffer cells (KC) was increased in tumor tissues compared with surrounding nontumor liver tissues in patients with HCC and this correlated with poorer survival. Coculture of HCC cells with monocytes showed that tumor-associated interleukin-10 contributed to the induction of B7-H1 in the HCC environment. We further observed that the levels of PD-1⁺CD8⁺ T cells were higher in tumor tissues than in nontumor tissues. B7-H1⁺ KCs and PD-1⁺ T cells were colocalized in the HCC stroma. PD-1⁺CD8⁺ T cells had decreased proliferative ability and effector function as shown by reduced granule and cytokine expression compared with PD-1⁻ T cells. Importantly, blocking KC B7-H1 interaction with PD-1⁺CD8⁺ cells using neutralizing antibodies recovered effector T-cell function. Our data indicate that the B7-H1/PD-1 axis contributes to immune suppression in human HCC, with blockade of this pathway carrying important therapeutic implications. [Cancer Res 2009;69(20):8067–75]