While CD8+ cytotoxic T cells are clearly critical for identification and elimination of cancer cells, factors concentrated within the tumor microenvironment drive their altered differentiation to a hypofunctional, short-lived state termed exhaustion. Exhaustion is a progressive lineage, and it is now clear that the most terminally exhausted T (tTexh) cells are not the targets of checkpoint blockade immunotherapy but rather serve as factors that limit immunotherapeutic efficacy. Compared directly, tumor-infiltrating CD8+ tTexh cells bear notable phenotypic similarity to CD4+Foxp3+ regulatory T (Treg) cells, suggesting beyond loss of proinflammatory function, tTexh cells may be directly anti-functional and constrain tumor specific immunity. Here we show, when isolated from the same tumor microenvironment, terminally exhausted CD8+ T cells carried similar capacity to suppress T cell proliferation as CD4+Foxp3+ Treg cells. Unlike Treg cells, tTexh cells suppress solely via the ectonucleotidase CD39, which serves to deplete extracellular ATP (eATP) and produce an adenosinergic environment. CD39 expression in tTexh cells is driven by exposure to tumor hypoxia, such that therapeutic targeting of hypoxia limits tTexh suppression and support responses to immunotherapy. Specific deletion of CD39 in CD8+ T cells slows tumor progression and improves response to checkpoint blockade, highlighting a major role for immunosuppression by exhausted T cells in cancer. Thus, tTexh cells are an unappreciated immunoregulatory population and for full immunotherapeutic efficacy, strategies should be designed to either limit their generation, reprogram their immunosuppressive nature, or remove them from the tumor microenvironment.