Identifying signals in the tumor microenvironment (TME) that shape CD8⁺ T cell phenotype can inform novel therapeutic approaches for cancer. Here, we identified a gradient of increasing glucocorticoid receptor (GR) expression and signaling from naïve to dysfunctional CD8⁺ tumor-infiltrating lymphocytes (TILs). Conditional deletion of the GR in CD8⁺ TILs improved effector differentiation, reduced expression of the transcription factor TCF-1, and inhibited the dysfunctional phenotype, culminating in tumor growth inhibition. GR signaling transactivated the expression of multiple checkpoint receptors and promoted the induction of dysfunction-associated genes upon T cell activation. In the TME, monocyte-macrophage lineage cells produced glucocorticoids and genetic ablation of steroidogenesis in these cells as well as localized pharmacologic inhibition of glucocorticoid biosynthesis improved tumor growth control. Active glucocorticoid signaling associated with failure to respond to checkpoint blockade in both preclinical models and melanoma patients. Thus, endogenous steroid hormone signaling in CD8⁺ TILs promotes dysfunction, with important implications for cancer immunotherapy.