Immunity to chronic viral infection and cancer is tightly associated with CD8+ T cell exhaustion, which is characterized by high expression of inhibitory receptors such as programmed cell death protein 1 (PD-1) and impaired effector function. Understanding the molecular regulation of T cell exhaustion is critical for the development of new immunotherapies. Chronically activated T cells are maintained by precursors of exhausted T (TPEX) cells that express the transcription factor TCF1, self-renew and give rise to TCF-1– exhausted effector T (TEX) cells; the factors that control these processes, however, are poorly understood. Using single cell RNAseq we describe a novel functionally important subset of cells within the TPEX cell compartment that selectively preserves the long-term self-renewal capacity and multipotency of antigen-specific T cells during chronic infection. Furthermore, we identify a transcription factor that is essential for both the self-renewal capacity of TPEX cells and the induction of key features of T cell exhaustion. Finally, we show that the novel transcriptionally distinct TPEX cell subset exclusively mediates T cell proliferation during PD-1 checkpoint inhibition, making it an attractive target for new immunotherapeutic strategies.