We conducted a randomized clinical trial in 45 patients with resected AJCC stage IIB-IV melanoma to characterize cellular and molecular events at sites of immunization with incomplete Freund’s adjuvant (IFA) alone, or a melanoma vaccine in IFA. At a primary vaccine site, all patients received a multi-peptide melanoma vaccine in IFA. At a replicate vaccine site, which was biopsied, group 1 received IFA only; group 2 received vaccine in IFA. Lymphocytes isolated from replicate vaccine site microenvironments (VSME) were compared to time-matched peripheral blood mononuclear cells (PBMC) in ELISpot and flow cytometry assays. Compared to PBMC, the VSME had fewer naïve and greater proportions of effector memory CD8⁺ T cells (T_CD8). The vast majority of T_CD8 within the VSME were activated (CD69⁺), with a concentration of antigen-specific (tetramer^pos) cells in the VSME, particularly in vaccine sites with peptide (group 2). CXCR3⁺ lymphocytes were concentrated in the VSME of all patients, suggesting IFA-induced chemokine recruitment. T_CD8 expression of retention integrins αEβ7 and α1β1 was elevated in VSME, with the highest levels observed in antigen-specific cells in VSME containing peptide (group 2). T_CD8 retained in the VSME of both groups were strikingly dysfunctional, with minimal IFN-γ production in response to peptide stimulation and few tetramer^pos cells producing IFN-γ. These data suggest that vaccine-induced selective retention and dysfunction of antigen-specific T_CD8 within VSME may represent a significant mechanism underlying transient immune responses and low clinical response rates to peptide vaccines administered in IFA.