Stromal cells of mesenchymal origin reside below the epithelial compartment and provide structural support in the intestine. These intestinal stromal cells interact with both the epithelial cell compartments, as well as infiltrating hematopoietic immune cells. The importance of these cells in regulating immune homeostasis during inflammation is well recognized. However, little is known about their function and phenotype in the inflammatory tumor microenvironment. Using a syngeneic, immunogenic model of colorectal cancer, we showed that TNFalpha-initiated inflammatory signaling in CT26 colorectal cancer cells selectively induced PD-L1 expression in stromal cells. Using PD-L1 shRNA and antibody-mediated approaches, we showed that stromal cell PD-L1 potentiated enhanced immunosuppression, characterized by inhibition of activated CD8+ granzyme B-secreting T cells in vitro, and the inhibition of CD8+ effector cells was associated with enhanced tumor progression. Stromal cell immunosuppressive and tumor-promoting effects could be reversed with administration of an anti-PD-1 in vivo. We validated our findings of stromal cell PD-L1 expression in two cohorts of clinical samples and also observed PD-L1 induction on human stromal cells in response to exposure to the inflammatory secretome from human colon cancer cells, irrespective of microsatellite instability. Collectively, our data showed that tumor-associated stromal cells support T-cell suppression by PD-L1 induction, which is dependent on colon cancer inflammatory signaling. Our findings reveal a key role of mesenchymal stromal cell PD-L1 in suppression of CD8+ antitumor immune responses and potentiation of colorectal cancer progression.