During many chronic infections, the responding CD8 T cells become exhausted as they progressively lose their ability to elaborate key effector functions. Unlike prototypic memory CD8 cells, which rapidly synthesize IFN-gamma following activation, severely exhausted T cells fail to produce this effector molecule. Nevertheless, the ontogeny of exhausted CD8 T cells, as well as the underlying mechanisms that account for their functional inactivation, remains ill defined. We have used cytokine reporter mice, which mark the transcription of IFN-gamma mRNA by the expression of Thy1.1, to decipher how activation events during the early stages of a chronic infection dictate the development of exhaustion. We show that virus-specific CD8 T cells clearly respond during the early stages of chronic lymphocytic choriomeningitis virus infection, and that this early T cell response is more pronounced than that initially observed in acutely infected hosts. Thus, exhausted CD8 T cells appear to emerge from populations of potently activated precursors. Unlike acute infections, which result in massive expansion of the responding T cells, there is a rapid attenuation of further expansion during chronic infections. The exhausted T cells that subsequently emerge in chronically infected hosts are incapable of producing the IFN-gamma protein. Surprisingly, high levels of the IFN-gamma transcript are still present in exhausted cells, demonstrating that ablation of IFN-gamma production by exhausted cells is not due to transcriptional silencing. Thus, posttranscription regulatory mechanisms likely disable this effector module.