Tumor progression in the host leads to severe impairment of intrathymic T-cell differentiation/maturation, leading to the paralysis of cellular anti-tumor immunity. Such suppression manifests the erosion of CD4 + CD8 + double-positive (DP) immature thymocytes and a gradual increase in CD4 − CD8 − double negative (DN) early T-cell progenitors. The impact of such changes on the T-cell progenitor pool in the context of cancer remains poorly investigated. Here, we show that tumor progression blocks the transition of Lin − Thy1.2 + CD25 + CD44 + c-Kit low DN2b to Lin − Thy1.2 + CD25 + CD44 − c-Kit − DN3 in T-cell maturation, instead leading to DN2-T-cell differentiation into dendritic cells (DC). We observed that thymic IL-10 expression is upregulated, particularly at cortico-medullary junctions (CMJ), under conditions of progressive disease, resulting in the termination of IL-10R high DN2-T-cell maturation due to dysregulated expression of Notch1 and its target, CCR7 (thus restricting these cells to the CMJ). Intrathymic differentiation of T-cell precursors in IL-10 −/− mice and in vitro fetal thymic organ cultures revealed that IL-10 promotes the interaction between thymic stromal cells and Notch1 low DN2-T cells, thus facilitating these DN2-T cells to differentiate toward CD45 + CD11c + MHC-II + thymic DCs as a consequence of activating the Ikaros/IRF8 signaling axis. We conclude that a novel function of thymically-expressed IL-10 in the tumor-bearing host diverts T-cell differentiation toward a DC pathway, thus limiting the protective adaptive immune repertoire.