Regulatory T (Treg) 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 Treg cells during acute or chronic infection with lymphocytic choriomeningitis virus. Chronic infection, unlike acute infection, led to a large expansion of Treg cells and their upregulation of programmed death-1 (PD-1). Treg cells from chronically infected mice (chronic Treg 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 Treg 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 Treg cells and PD-1 ligand on CD8+ T cells. Our study defines PD-1 upregulated on Treg 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 Treg cells, in addition to that on exhausted T cells, during chronic viral infection.