Persistent exposure to antigen during chronic infection or cancer renders T cells dysfunctional. The molecular mechanisms regulating this state of exhaustion are thought to be common in infection and cancer, despite obvious differences in their microenvironments. Here we found that NFAT5, an NFAT family transcription factor that lacks an AP-1 docking site, was highly expressed in exhausted CD8 ⁺ T cells in the context of chronic infections and tumors but was selectively required in tumor-induced CD8 ⁺ T cell exhaustion. Overexpression of NFAT5 in CD8 ⁺ T cells reduced tumor control, while deletion of NFAT5 improved tumor control by promoting the accumulation of tumor-specific CD8 ⁺ T cells that had reduced expression of the exhaustion-associated proteins TOX and PD-1 and produced more cytokines, such as IFNɣ and TNF, than cells with wild-type levels of NFAT5, specifically in the precursor exhausted PD-1 ⁺ TCF1 ⁺ TIM-3 ^- CD8 ⁺ T cell population. NFAT5 did not promote T cell exhaustion during chronic infection with clone 13 of lymphocytic choriomeningitis virus. Expression of NFAT5 was induced by TCR triggering, but its transcriptional activity was specific to the tumor microenvironment and required hyperosmolarity. Thus, NFAT5 promoted the exhaustion of CD8 ⁺ T cells in a tumor-selective fashion.