SARS-CoV-2 is a single-stranded RNA virus that causes COVID-19. Given its acute and often self-limiting course, it is likely that components of the innate immune system play a central part in controlling virus replication and determining clinical outcome. Natural killer (NK) cells are innate lymphocytes with notable activity against a broad range of viruses, including RNA viruses^,. NK cell function may be altered during COVID-19 despite increased representation of NK cells with an activated and adaptive phenotype^,. Here we show that a decline in viral load in COVID-19 correlates with NK cell status and that NK cells can control SARS-CoV-2 replication by recognizing infected target cells. In severe COVID-19, NK cells show defects in virus control, cytokine production and cell-mediated cytotoxicity despite high expression of cytotoxic effector molecules. Single-cell RNA sequencing of NK cells over the time course of the COVID-19 disease spectrum reveals a distinct gene expression signature. Transcriptional networks of interferon-driven NK cell activation are superimposed by a dominant transforming growth factor-β (TGFβ) response signature, with reduced expression of genes related to cell–cell adhesion, granule exocytosis and cell-mediated cytotoxicity. In severe COVID-19, serum levels of TGFβ peak during the first two weeks of infection, and serum obtained from these patients severely inhibits NK cell function in a TGFβ-dependent manner. Our data reveal that an untimely production of TGFβ is a hallmark of severe COVID-19 and may inhibit NK cell function and early control of the virus.