Cytotoxic CD8+ T Lymphocytes (CTL) efficiently control acute virus infections but can become exhausted when a chronic infection develops. Signaling of the inhibitory receptor PD-1 is an important mechanism for the development of virus-specific CD8+ T cell dysfunction. However, it has recently been shown that during the initial phase of infection virus-specific CD8+ T cells express high levels of PD-1, but are fully competent in producing cytokines and killing virus-infected target cells. To better understand the role of the PD-1 signaling pathway in CD8+ T cell cytotoxicity during acute viral infections we analyzed the expression of the ligand on retrovirus-infected cells targeted by CTLs. We observed increased levels of PD-L1 expression after infection of cells with the murine Friend retrovirus (FV) or with HIV. In FV infected mice, virus-specific CTLs efficiently eliminated infected target cells that expressed low levels of PD-L1 or that were deficient for PD-L1 but the population of PD-L1high cells escaped elimination and formed a reservoir for chronic FV replication. Infected cells with high PD-L1 expression mediated a negative feedback on CD8+ T cells and inhibited their expansion and cytotoxic functions. These findings provide evidence for a novel immune escape mechanism during acute retroviral infection based on PD-L1 expression levels on virus infected target cells.