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Myelodysplastic syndrome (MDS) and chronic myelomonocytic leukemia (CMML) are clonal myeloid neoplasms shaped by genetic lesions and immune dysregulation, both of which contribute to disease progression and poor outcomes. Existing prognostic systems, such as IPSS-R and IPSS-M, do not incorporate immune alterations. We assessed the biological and clinical relevance of an immune dysfunction signature (IDS) across multi-center MDS and CMML cohorts. IDS scores, derived from bulk transcriptomic data, were significantly associated with inferior leukemia-free and overall survival. In multivariable analyses, IDS retained independent prognostic value alongside IPSS-R, IPSS-M, and bi-allelic TP53 inactivation. Incorporation of IDS into existing models improved prognostic discrimination and time-dependent predictive accuracy. Longitudinal analyses revealed that rising IDS scores paralleled disease progression and acute transformation, whereas declining scores were observed in remission. Biologically, IDS-high cases demonstrated reduced cytotoxic T-cell activity, expansion of regulatory T cells, enrichment of primitive progenitor signals, and increased expression of checkpoint pathway genes. These findings were validated across multiple independent MDS cohorts and consistently reproduced in CMML, where IDS also stratified risk and tracked disease evolution. Finally, integration with drug response signatures from the BeatAMLv2 cohort suggested potential therapeutic vulnerability of IDS-high cases to multikinase and NF-κB pathway inhibitors. These results establish IDS as a robust and dynamic biomarker in MDS and CMML, with applications in refined risk stratification, longitudinal disease monitoring, and guiding personalized therapeutic strategies targeting immune dysfunction. Trial Registration: #201709072RINC, #202109078RINB, #202207050RINB.