Mycobacterium bovis Bacillus Calmette-Guerin (BCG) is the primary treatment for non-muscle-invasive bladder cancer (NMIBC), known to stimulate inflammatory cytokines, notably interferon (IFN)-γ. We observed that prolonged IFN-γ exposure fosters adaptive resistance in recurrent tumors, aiding immune evasion and tumor proliferation. We identify HLA-E and NKG2A, part of a novel NK and T cell checkpoint pathway, as key mediators of resistance in BCG-unresponsive NMIBC. IFN-γ enhances HLA-E and PD-L1 expression in recurrent tumors, with an enrichment of intra-tumoral NKG2A-expressing NK and CD8 T cells. CXCL9 + macrophages and dendritic cells and CXCL12-expressing stromal cells likely recruit CXCR3/CXCR4-expressing NK and T cells and CXCR7 + HLA-E HIGH tumor cells. NK and CD8 T cells remain functional within BCG-unresponsive tumors but are inhibited by HLA-E and PD-L1, providing a framework for combined NKG2A and PD-L1 blockade strategy for bladder-sparing treatment of BCG-unresponsive NMIBC.