Chronic viral infections are characterized by a state of CD8+ T-cell dysfunction that is associated with expression of the programmed cell death 1 (PD-1) inhibitory receptor1,2,3,4. A better understanding of the mechanisms that regulate CD8+ T-cell responses during chronic infection is required to improve immunotherapies that restore function in exhausted CD8+ T cells. Here we identify a population of virus-specific CD8+ T cells that proliferate after blockade of the PD-1 inhibitory pathway in mice chronically infected with lymphocytic choriomeningitis virus (LCMV). These LCMV-specific CD8+ T cells expressed the PD-1 inhibitory receptor, but also expressed several costimulatory molecules such as ICOS and CD28. This CD8+ T-cell subset was characterized by a unique gene signature that was related to that of CD4+ T follicular helper (TFH) cells, CD8+ T cell memory precursors and haematopoietic stem cell progenitors, but that was distinct from that of CD4+ TH1 cells and CD8+ terminal effectors. This CD8+ T-cell population was found only in lymphoid tissues and resided predominantly in the T-cell zones along with naive CD8+ T cells. These PD-1+CD8+ T cells resembled stem cells during chronic LCMV infection, undergoing self-renewal and also differentiating into the terminally exhausted CD8+ T cells that were present in both lymphoid and non-lymphoid tissues. The proliferative burst after PD-1 blockade came almost exclusively from this CD8+ T-cell subset. Notably, the transcription factor TCF1 had a cell-intrinsic and essential role in the generation of this CD8+ T-cell subset. These findings provide a better understanding of T-cell exhaustion and have implications in the optimization of PD-1-directed immunotherapy in chronic infections and cancer.