Human T-cell leukemia virus type 1 (HTLV-1) mainly infects CD4+ T-cells and induces chronic, persistent infection in infected individuals with some progressing to develop adult T-cell leukemia/lymphoma (ATL). Whilst HTLV-1 alters cellular differentiation, activation and survival, it is unknown whether and how these changes contribute to malignant transformation of infected T-cells. In this study, we used single-cell RNA-Seq and TCR-Seq to investigate T-cell differentiation and HTLV-1-mediated transformation processes. We analyzed 87,742 single cells from peripheral blood of 12 infected and 3 uninfected individuals. Using multiple independent bioinformatic methods, we demonstrated that naive T-cells dynamically change into activated T-cells including infected cells, which seamlessly transitioned into ATL cells characterized by clonally expanded, highly-activated T-cells. Notably, the more activated ATL cells are, the more they acquire Treg signatures. Intriguingly, HLA class II genes were uniquely induced in infected cells, further upregulated in ATL cells and was induced by viral protein Tax. Functional assays revealed that by upregulating HLA class II, HTLV-1-infected cells can act as tolerogenic antigen presenting cells (APCs) to induce anergy of antigen specific T-cells. In conclusion, our study revealed the in vivo mechanisms of HTLV-1-mediated transformation and immune escape at single-cell level.