Induction of the MHC class I antigen processing and presentation pathway (C1APP) is a critical part of the IFN-γ response necessary for effective cytotoxic immunity against tumors of epithelial origin^1,2. Loss of this response is associated with worse disease outcomes and renders patients refractory to immunotherapies^3–6. Without C1APP induction, tumor cells cannot optimally process and present immunopeptides from tumor-associated antigens (TAA) and neoantigens to effector cytotoxic T cells^7–9. Here, we show that physiologic levels of hypoxia block induction of the immunoproteasome (IP) and other C1APP components in cancer cells, including human non-small cell lung cancer (NSCLC). In A549 cells, this leads to impaired presentation of more than 73% of detectable immunopeptides, including TAA and neoantigen-derived immunopeptides. This effect is independent of HIF-1α or HIF-2α signaling, protein degradation, autophagy, or stimulus type. Instead, hypoxia induces translational arrest of C1APP mRNAs prior to complete monosome loading, along with sequestration into hypoxia-associated stress granules. This phenomenon is reversible with the epitranscriptomic compound 5-azacytidine. Consistent with these findings, IP expression is excluded from hypoxic regions in most human NSCLC tumors. Together, these results link tumor hypoxia to a state of “immunogenic dormancy” and identify stress granules as a previously unrecognized mechanism of immune escape.