Lymphocytes were originally thought to form the basis of a `cancer immunosurveillance' process that protects immunocompetent hosts against primary tumour development1,2, but this idea was largely abandoned when no differences in primary tumour development were found between athymic nude mice and syngeneic wild-type mice3,4,5. However, subsequent observations that nude mice do not completely lack functional T cells6,7 and that two components of the immune system—IFNγ8,9 and perforin10,11,12—help to prevent tumour formation in mice have led to renewed interest in a tumour-suppressor role for the immune response. Here we show that lymphocytes and IFNγ collaborate to protect against development of carcinogen-induced sarcomas and spontaneous epithelial carcinomas and also to select for tumour cells with reduced immunogenicity. The immune response thus functions as an effective extrinsic tumour-suppressor system. However, this process also leads to the immunoselection of tumour cells that are more capable of surviving in an immunocompetent host, which explains the apparent paradox of tumour formation in immunologically intact individuals.