Cancers subvert the host immune system to facilitate disease progression. These evolved immunosuppressive mechanisms are also implicated in circumventing immunotherapeutic strategies. Emerging data indicate that local tumor-associated DC populations exhibit tolerogenic features by promoting Treg development; however, the mechanisms by which tumors manipulate DC and Treg function in the tumor microenvironment remain unclear. Type III TGF-β receptor (TGFBR3) and its shed extracellular domain (sTGFBR3) regulate TGF-β signaling and maintain epithelial homeostasis, with loss of TGFBR3 expression promoting progression early in breast cancer development. Using murine models of breast cancer and melanoma, we elucidated a tumor immunoevasion mechanism whereby loss of tumor-expressed TGFBR3/sTGFBR3 enhanced TGF-β signaling within locoregional DC populations and upregulated both the immunoregulatory enzyme indoleamine 2,3-dioxygenase (IDO) in plasmacytoid DCs and the CCL22 chemokine in myeloid DCs. Alterations in these DC populations mediated Treg infiltration and the suppression of antitumor immunity. Our findings provide mechanistic support for using TGF-β inhibitors to enhance the efficacy of tumor immunotherapy, indicate that sTGFBR3 levels could serve as a predictive immunotherapy biomarker, and expand the mechanisms by which TGFBR3 suppresses cancer progression to include effects on the tumor immune microenvironment.