Regulatory T (T reg) cells act as terminators of T cell immuniy during acute phase of viral infection; however, their role and suppressive mechanism in chronic viral infection are not completely understood. In this study, we compared the phenotype and function of T reg cells during acute or chronic infection with lymphocytic choriomeningitis virus. Chronic infection, unlike acute infection, led to a large expansion of T reg cells and their upregulation of programmed death-1 (PD-1). T reg cells from chronically infected mice (chronic T reg cells) displayed greater suppressive capacity for inhibiting both CD8+ and CD4+ T cell proliferation and subsequent cytokine production than those from naive or acutely infected mice. A contact between T reg and CD8+ T cells was necessary for the potent suppression of CD8+ T cell immune response. More importantly, the suppression required cell-specific expression and interaction of PD-1 on chronic T reg cells and PD-1 ligand on CD8+ T cells. Our study defines PD-1 upregulated on T reg cells and its interaction with PD-1 ligand on effector T cells as one cause for the potent T cell suppression and proposes the role of PD-1 on T reg cells, in addition to that on exhausted T cells, during chronic viral infection.