The Azure-shouldered Tanager is found in south-east Brazil although there is an old and doubtful record from Paraguay. It inhabits forest on the slopes of the Serra do Mar and is more of a forest bird than the very similar Sayaca Tanager T. sayaca. See the distribution map at Birdlife International.

It is classified as Near Threatened by Birdlife International because of its relatively low population and the threat to its habitat - the canopy and borders of the Atlantic Rain Forest.