NKG2D is an activating receptor for NK, NKT, CD8(+), and gammadelta(+) T cells, whose aberrant loss in cancer is a key mechanism of immune evasion. Soluble NKG2D ligands and growth factors, such as TGFbeta1 emanating from tumors, are mechanisms for down-regulating NKG2D expression. Cancers thereby impair the capacity of lymphocytes to recognize and destroy them. In this study, we show that exosomes derived from cancer cells express ligands for NKG2D and express TGFbeta1, and we investigate the impact of such exosomes on CD8(+) T and NK cell NKG2D expression and on NKG2D-dependent functions. Exosomes produced by various cancer cell lines in vitro, or isolated from pleural effusions of mesothelioma patients triggered down-regulation of surface NKG2D expression by NK cells and CD8(+) T cells. This decrease was rapid, sustained, and resulted from direct interactions between exosomes and NK cells or CD8(+) T cells. Other markers (CD4, CD8, CD56, CD16, CD94, or CD69) remained unchanged, indicating the selectivity and nonactivatory nature of the response. Exosomal NKG2D ligands were partially responsible for this effect, as down-modulation of NKG2D was slightly attenuated in the presence of MICA-specific Ab. In contrast, TGFbeta1-neutralizing Ab strongly abrogated NKG2D down-modulation, suggesting exosomally expressed TGFbeta as the principal mechanism. Lymphocyte effector function was impaired by pretreatment with tumor exosomes, as these cells exhibited poor NKG2D-dependent production of IFN-gamma and poor NKG2D-dependent killing function. This hyporesponsiveness was evident even in the presence of IL-15, a strong inducer of NKG2D. Our data show that NKG2D is a likely physiological target for exosome-mediated immune evasion in cancer.