Defects in natural killer (NK) cell functions are necessary for tumor immune escape, but their underlying regulatory mechanisms in human cancers remain largely unknown. Here we show, in detailed studies of NK cells in 294 untreated patients with hepatocellular carcinoma (HCC), that accumulation of functional NK cells in HCC tissues could predict improved survival of patients. However, in patients with advanced‐stage HCC, NK cells were significantly decreased in number with impaired tumor necrosis factor alpha (TNF‐α) and interferon‐gamma (IFN‐γ) production. High infiltration of peritumoral stroma monocytes/macrophages was positively correlated with impaired functional activities of NK cells in intratumoral areas. Further kinetic experiments revealed that soon after exposure to tumor‐derived monocytes, NK cells underwent a rapid, transient activation, but then they became exhausted, and eventually died. The monocytes from HCC tissues, but not from nontumoral liver, strongly express CD48 proteins; and such monocyte‐induced NK cell dysfunction was markedly attenuated by blocking CD48 receptor 2B4 on NK cells, but not by blockade of NKG2D and NKp30. Conclusion: These data reveal that human NK cells are regulated by a fine‐tuned collaborative action between different types of immune cells, which may reflect a novel immune‐escape mechanism by which tumors dynamically regulate their functions at distinct tumor microenvironments. (HEPATOLOGY 2013)