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Natural killer (NK) cells comprise one subset of the innate lymphoid cell (ILC) family. Despite reported antitumor functions of NK cells, their tangible contribution to tumor control in humans remains controversial. This is due to incomplete understanding of the NK cell states within the tumor microenvironment (TME). Here, we demonstrate that peripheral circulating NK cells differentiate down two divergent pathways within the TME, resulting in different end states. One resembles intraepithelial ILC1s (ieILC1) and possesses potent in vivo antitumor activity. The other expresses genes associated with immune hyporesponsiveness and has poor antitumor functional capacity. Interleukin-15 (IL-15) and direct contact between the tumor cells and NK cells are required for the differentiation into CD49a⁺CD103⁺ cells, resembling ieILC1s. These data explain the similarity between ieILC1s and tissue-resident NK cells, provide insight into the origin of ieILC1s, and identify the ieILC1-like cell state within the TME to be the NK cell phenotype with the greatest antitumor activity. Because the proportions of the different ILC states vary between tumors, these findings provide a resource for the clinical study of innate immune responses against tumors and the design of novel therapy.