Virus-specific CD8⁺ T cells are critical for the control of acute Friend virus (FV) infections, but are rendered impotent by CD4⁺ regulatory T cells during the chronic phase of infection. The current study examines this CD8⁺ T-cell dysfunction by analyzing the production and release of cytolytic molecules by CD8⁺ T cells. CD8⁺ T cells with an activated phenotype (CD43⁺) from acutely infected mice produced all three key components of lytic granules: perforin, granzyme A, and granzyme B. Furthermore, they displayed evidence of recent degranulation and in vivo cytotoxicity. In contrast, activated CD8⁺ T cells from chronically infected mice were deficient in cytolytic molecules and showed little evidence of recent degranulation and poor in vivo cytotoxicity. Evidence from tetramer-positive CD8⁺ T cells with known virus specificity confirmed the findings from the activated subset of CD8⁺ T cells. Interestingly, perforin and granzyme A mRNA levels were not significantly reduced during chronic infection, indicating control at a posttranscriptional level. Granzyme B deficiency was associated with a significant decrease in mRNA levels, but posttranscriptional control also appeared to contribute to deficiency. These results demonstrate a broad impairment of cytotoxic CD8⁺ T-cell effector function during chronic retroviral infection and explain the inability of virus-specific CD8⁺ T cells to eliminate persistent virus.