TGFβ signaling is associated with non-response to immune checkpoint blockade in patients with advanced cancers, particularly in the immune-excluded phenotype. While previous work demonstrates that converting tumors from excluded to inflamed phenotypes requires attenuation of PD-L1 and TGFβ signaling, the underlying cellular mechanisms remain unclear. Here, we show that TGFβ and PD-L1 restrain intratumoral stem cell-like CD8 T cell (TSCL) expansion and replacement of progenitor-exhausted and dysfunctional CD8 T cells with non-exhausted T effector cells in the EMT6 tumor model in female mice. Upon combined TGFβ/PD-L1 blockade IFNγhi CD8 T effector cells show enhanced motility and accumulate in the tumor. Ensuing IFNγ signaling transforms myeloid, stromal, and tumor niches to yield an immune-supportive ecosystem. Blocking IFNγ abolishes the anti-PD-L1/anti-TGFβ therapy efficacy. Our data suggest that TGFβ works with PD-L1 to prevent TSCL expansion and replacement of exhausted CD8 T cells, thereby maintaining the T cell compartment in a dysfunctional state.