Pancreatic cancer (PC) remains one of the most challenging solid tumors to treat with a high unmet medical need as patients poorly respond to standard-of-care-therapies. Prominent desmoplastic reaction involving cancer-associated fibroblasts (CAFs) and the immune cells in the tumor microenvironment (TME) and their cross-talk play a significant role in tumor immune escape and progression. To identify the key cellular mechanisms induce an immunosuppressive tumor microenvironment, we established 3D co-culture model with pancreatic cancer cells, CAFs and monocytes. Using this model, we analyzed the influence of tumor cells and fibroblasts on monocytes and their immune suppressive phenotype. Phenotypic characterization of the monocytes after 3D co-culture with tumor/fibroblast spheroids was performed by analyzing the expression of defined cell surface markers and soluble factors. Functionality of these monocytes and their ability to influence T cell phenotype and proliferation was investigated. 3D co-culture of monocytes with pancreatic cancer cells and fibroblasts induced the production of immunosuppressive cytokines which are known to promote polarization of M2 like macrophages and myeloid derived suppressive cells (MDSCs). These co-culture spheroid polarized monocyte derived macrophages (MDMs) were poorly differentiated and had an M2 phenotype. The immunosuppressive function of these co-culture spheroids polarized MDMs was demonstrated by their ability to inhibit CD4+ and CD8+ T cell activation and proliferation in vitro, which we could partially reverse by 3D co-culture spheroid treatment with therapeutic molecules that are able to re-activated spheroid polarized MDMs or block immune suppressive factors such as Arginase-I.