HTLV-I-associated myelopathy/tropical spastic paraparesis (HAM/TSP) is a chronic, progressive, neuroinflammatory demyelinating condition of the spinal cord. We have previously shown that aberrant expression and activity of immune checkpoint (ICP) molecules such as PD-1 and PD-L1/PD-L2, negatively associates with the cytolytic potential of T cells in individuals with HAM/TSP. Interestingly, ICPs can exist in a soluble cell-free form and can be carried on extracellular vesicles (EVs) and exosomes (small EVs, <300 nm) while maintaining their immunomodulatory activity. Therefore, we investigated the role of soluble and exosomal ICPs in HTLV-1 associated neuroinflammation. For the very first time, we demonstrate a unique elevated presence of several stimulatory (CD27, CD28, 4-1BB) and inhibitory (BTLA, CTLA-4, LAG-3, PD-1, PD-L2) ICP receptors in HAM/TSP sera, and in purified exosomes from a HAM/TSP-derived HTLV-1-producing (OSP2) cells. These ICPs were found to be co-localized with the endosomal sorting complex required for transport (ESCRT) pathway proteins and exhibited functional binding with their respective ligands. Viral proteins and cytokines (primarily IFNγ) were found to be present in purified exosomes. IFNγ exposure enhanced the release of ICP molecules while antiretroviral drugs (Azidothymidine and Lopinavir) significantly inhibited this process. HTLV-1 b-Zip protein (HBZ) has been linked to factors that enhance EV release and concurrent knockdown here led to the reduced expression of ESCRT associated genes (e.g., Hrs, Vsp, Alix, Tsg) as well as abrogated the release of ICP molecules, suggesting HBZ involvement in this process. Moreso, exosomes from OSP2 cells adversely affected CD8 T-cell functions by diminishing levels of cytokines and cytotoxic factors. Collectively, these findings highlight exosomemediated immunomodulation of T-cell functions with HBZ and ESCRT pathways as an underlying mechanism in the context of HTLV-1-induced neuroinflammation.