RNA modification plays an important role in epigenetics at the posttranscriptional level, and 5-methylcytosine (m5C) has attracted increasing attention in recent years due to the improvement in RNA m5C site detection methods. By influencing transcription, transportation and translation, m5C modification of mRNA, tRNA, rRNA, lncRNA and other RNAs has been proven to affect gene expression and metabolism and is associated with a wide range of diseases, including malignant cancers. RNA m5C modifications also substantially impact the tumor microenvironment (TME) by targeting different groups of immune cells, including B cells, T cells, macrophages, granulocytes, NK cells, dendritic cells and mast cells. Alterations in immune cell expression, infiltration and activation are highly linked to tumor malignancy and patient prognosis. This review provides a novel and holistic examination of m5C-mediated cancer development by examining the exact mechanisms underlying the oncogenicity of m5C RNA modification and summarizing the biological effects of m5C RNA modification on tumor cells as well as immune cells. Understanding methylation-related tumorigenesis can provide useful insights for the diagnosis as well as the treatment of cancer.