Abstract Many cancer patients do not develop a durable response to the current standard-of-care immunotherapies, despite substantial advances in targeting immune inhibitory receptors. A potential compounding issue, which may serve as an unappreciated, dominant resistance mechanism, is an inherent systemic immune dysfunction that is often associated with advanced cancer. Minimal response to inhibitory receptor (IR) blockade therapy and increased disease burden have been associated with peripheral CD8+ T-cell dysfunction, characterized by suboptimal T-cell proliferation and chronic expression of IRs (e.g., PD1 and LAG3). Here, we demonstrated that approximately a third of cancer patients analyzed in this study have peripheral CD8+ T cells that expressed robust intracellular LAG3 (LAG3IC), but not surface LAG3 (LAG3SUR) due to a disintegrin and metalloproteinase domain-containing protein 10 (ADAM10) cleavage. This is associated with poor disease prognosis and decreased CD8+ T-cell function, which could be partially reversed by anti-LAG3. Systemic immune dysfunction was restricted to CD8+ T cells, including, in some cases, a high percentage of peripheral naïve CD8+ T cells, and was driven by the cytokine IL6 via STAT3. These data suggest that additional studies are warranted to determine if the combination of increased LAG3IC in peripheral CD8+ T cells and elevated systemic IL6 can serve as predictive biomarkers and identify which cancer patients may benefit from LAG3 blockade.