Cytolytic CD8⁺ T cells are critical for the control of acute Friend virus (FV) infection yet they fail to completely eliminate the virus during chronic infection because they are functionally impaired by regulatory T cells (Treg). We performed a kinetic analysis of T cell responses during FV infection to determine when dysfunction of CD8⁺ T cells and suppressive activity of CD4⁺ regulatory T cells develops. At 1 week post infection, virus‐specific CD8⁺ T cells with effector phenotype and cytolytic potential expanded. Peak expansion was found at 12 days post infection, correlating with peak viral loads. After 2 weeks when viral loads dropped, numbers of activated CD8⁺ T cells started to decline. However, a population of virus‐specific CD8⁺ T cells with effector phenotype was still detectable subsequently, but these cells had lost their ability to produce granzymes and to degranulate cytotoxic molecules. Contemporaneous with the development of CD8⁺ T cell dysfunction, different CD4⁺ T cell populations expressing cell surface markers for Treg and the Treg‐associated transcription factor Foxp3 expanded. Transfer as well as depletion experiments indicated that regulatory CD4⁺ cells developed during the second week of FV infection and subsequently suppressed CD8⁺ T cell functions, which was associated with impaired virus clearance.