During chronic viral infection, persistent exposure to viral Ags leads to the overexpression of multiple inhibitory cell-surface receptors that cause CD8+ T cell exhaustion. The severity of exhaustion correlates directly with the level of infection and the number and intensity of inhibitory receptors expressed, and it correlates inversely with the ability to respond to the blockade of inhibitory pathways. Friend virus (FV) is a murine retrovirus complex that induces acute high-level viremia, followed by persistent infection and leukemia development, when inoculated into immunocompetent adult mice. In this article, we provide conclusive evidence that FV infection results in the generation of virus-specific effector CD8+ T cells that are terminally exhausted. Acute FV-induced disease is characterized by a rapid increase in the number of virus-infected erythroblasts, leading to massive splenomegaly. Most of the expanded erythroblasts strongly express programmed death ligand-1 and MHC class I, thereby creating a highly tolerogenic environment. Consequently, FV-specific effector CD8+ T cells uniformly express multiple inhibitory receptors, such as programmed cell death 1 (PD-1), T cell Ig domain and mucin domain 3 (Tim-3), lymphocyte activation gene-3, and CTLA-4, rapidly become nonresponsive to restimulation and are no longer reinvigorated by combined in vivo blockade of PD-1 and Tim-3 during the memory phase. However, combined blockade of PD-1 and Tim-3 during the priming/differentiation phase rescued FV-specific CD8+ T cells from becoming terminally exhausted, resulting in improved CD8+ T cell functionality and virus control. These results highlight FV’s unique ability to evade virus-specific CD8+ T cell responses and the importance of an early prophylactic approach for preventing terminal exhaustion of CD8+ T cells.