Introduction: Neoadjuvant chemoradiation (NACRT) is associated with 10-20% pathological complete response (pCR) rate in locally advanced rectal cancer (LARC) patients. Immune checkpoint inhibitors (ICIs) may improve pCR and relapse rates. We aim to characterise changes in the tumour microenvironment (TME) induced by NACRT plus ICI blockade and identify novel biomarkers. Methods: This was a multi-centre, single-arm, phase II trial which included LARC patients (cT3b-4/N1-2/M0) who underwent NACRT plus PD-L1 blockade (avelumab) followed by surgery. Pre- and post-treatment tissue samples were stained with antibodies targeting tumour and immune markers using multiplex immunofluorescence. Pathological response and disease relapse were recorded. Results: Thirty-two patients were included. The pCR rate was 18.8% and major pathological response rate was 34.4%. Three patients had local relapses (9.4%) and five had distant relapses (15.6%). Pre-treatment PD-L1 expression, specifically tumour proportion score (p=0.0043) and combined positive score (p=0.0420), was predictive of pCR. There were significant differences in densities of various immune cells in complete responders compared to non-complete responders. Higher intratumoral T cell density, particularly PD-L1-expressing, was associated with lower relapse risk (p=0.0203). Post-treatment, complete and near complete responders had low immune cell infiltration and no relapse. Some partial responders had high immune cell infiltration without relapse, suggesting that ongoing immune response is critical. Conclusion: We demonstrated significant TME changes in LARC patients after NACRT plus ICI blockade. Several potential immune biomarkers appear promising and require further validation.