The bioactivity of interferon-γ (IFN-γ) in cancer cells in the tumor microenvironment (TME) is not well understood in the current immunotherapy era. We found that IFN-γ has an immunosuppressive effect on colorectal cancer (CRC) cells. The tumor volume in immunocompetent mice was significantly increased after subcutaneous implantation of murine CRC cells followed by IFN-γ stimulation, and RNA sequencing showed high expression of B7 homologous protein 4 (B7H4) in these tumors. B7H4 promotes CRC cell growth by inhibiting the release of granzyme B (GzmB) from CD8+ T cells and accelerating apoptosis in CD8+ T cells. Furthermore, interferon regulatory factor 1 (IRF1), which binds to the B7H4 promoter, is positively associated with IFN-γ stimulation-induced expression of B7H4. The clinical outcome of patients with CRC was negatively related to the high expression of B7H4 in cancer cells or low expression of CD8 in the microenvironment. Therefore, B7H4 is a biomarker of poor prognosis in CRC patients, and interference with the IFN-γ/IRF1/B7H4 axis might be a novel immunotherapeutic method to restore the cytotoxic killing of CRC cells.