Cancer cells subvert immune surveillance through inhibition of T cell effector function. Elucidation of the mechanism of T cell dysfunction is therefore central to cancer immunotherapy. Here, we report that dual specificity phosphatase 2 (DUSP2; also known as phosphatase of activated cells 1, PAC1) acts as an immune checkpoint in T cell antitumor immunity. PAC1 is selectively upregulated in exhausted tumor-infiltrating lymphocytes and is associated with poor prognosis of patients with cancer. PAC1hi effector T cells lose their proliferative and effector capacities and convert into exhausted T cells. Deletion of PAC1 enhances immune responses and reduces cancer susceptibility in mice. Through activation of EGR1, excessive reactive oxygen species in the tumor microenvironment induce expression of PAC1, which recruits the Mi-2β nucleosome-remodeling and histone-deacetylase complex, eventually leading to chromatin remodeling of effector T cells. Our study demonstrates that PAC1 is an epigenetic immune regulator and highlights the importance of targeting PAC1 in cancer immunotherapy.