Immunotherapy resistance in non-small cell lung cancer (NSCLC) may be mediated by an immunosuppressive microenvironment, which can be shaped by the mutational landscape of the tumor. Here, we observed genetic alterations in the PTEN/PI3K/AKT/mTOR pathway and/or loss of PTEN expression in >25% of patients with NSCLC, with higher frequency in lung squamous carcinomas (LUSC). Patients with PTEN-low tumors had higher levels of PD-L1 and PD-L2 and showed worse progression-free survival when treated with immunotherapy. Development of a Pten-null LUSC mouse model revealed that tumors with PTEN loss were refractory to antiprogrammed cell death protein 1 (anti-PD-1), highly metastatic and fibrotic, and secreted TGFß/CXCL10 to promote conversion of CD4+ lymphocytes into regulatory T cells (Treg). Human and mouse PTEN-low tumors were enriched in Tregs and expressed higher levels of immunosuppressive genes. Importantly, treatment of mice bearing Pten-null tumors with TLR agonists and anti-TGFß antibody aimed to alter this immunosuppressive microenvironment and led to tumor rejection and immunologic memory in 100% of mice. These results demonstrate that lack of PTEN causes immunotherapy resistance in LUSCs by establishing an immunosuppressive tumor microenvironment that can be reversed therapeutically. Significance: PTEN loss leads to the development of an immunosuppressive microenvironment in lung cancer that confers resistance to anti-PD-1 therapy, which can be overcome by targeting PTEN loss-mediated immunosuppression.