Foxp3+ regulatory T (Treg) cells are essential for the maintenance of immune homeostasis and tolerance. During viral infections, Treg cells can limit the immunopathology resulting from excessive inflammation, yet potentially inhibit effective antiviral T cell responses and promote virus persistence. We report here that the fast-replicating LCMV strain Docile triggers a massive expansion of the Treg population that directly correlates with the size of the virus inoculum and its tendency to establish a chronic, persistent infection. This Treg cell proliferation was greatly enhanced in IL-21R-/- mice and depletion of Treg cells partially rescued defective CD8+ T cell cytokine responses and improved viral clearance in some but not all organs. Notably, IL-21 inhibited Treg cell expansion in a cell intrinsic manner. Moreover, experimental augmentation of Treg cells driven by injection of IL-2/anti-IL-2 immune complexes drastically impaired the functionality of the antiviral T cell response and impeded virus clearance. As a consequence, mice became highly susceptible to chronic infection following exposure to low virus doses. These findings reveal virus-driven Treg cell proliferation as potential evasion strategy that facilitates T cell exhaustion and virus persistence. Furthermore, they suggest that besides its primary function as a direct survival signal for antiviral CD8+ T cells during chronic infections, IL-21 may also indirectly promote CD8+ T cell poly-functionality by restricting the suppressive activity of infection-induced Treg cells.