T cell exhaustion is a major barrier to effective cancer immunotherapy. Although immune checkpoint blockade can reinvigorate exhausted T cells, not all patients achieve long-term responses, partly due to the refractory nature of terminally exhausted T cells. Beyond persistent antigen stimulation, the environmental drivers of exhaustion remain to be thoroughly characterized. Here we identify CD47 upregulation in tumor-infiltrating exhausted CD8+ T cells in both human and murine tumors. We reveal a novel role for the extracellular matrix protein thrombospondin-1 (TSP-1) in engaging CD47 on T cells to promote exhaustion. This interaction activates calcineurin-NFAT signaling, inducing upregulation of TOX and expression of inhibitory receptors, and impairing effector function during tumor progression. Importantly, disrupting the TSP-1-CD47 axis prevents T cell exhaustion and enhances tumor control. Our findings identify a novel pathway promoting T cell dysfunction and suggest that targeting the TSP-1-CD47 axis is a promising strategy to enhance T cell immunity and immunotherapy efficacy.