Chronic viral infection impairs systemic immunity in the host; however, the mechanism underlying the dysfunction of immune cells in chronic viral infection is incompletely understood. In this study, we studied the lineage differentiation of hematopoietic stem cells (HSCs) during chronic viral infection to elucidate the changes in dendritic cell (DC) differentiation and subsequent impact on T cell functionality using a chronic lymphocytic choriomeningitis virus (LCMV) infection model. We first investigated the lineage differentiation of HSCs in the bone marrow (BM) to elucidate the modulation of immune cell differentiation and found that the populations highly restrained in their differentiation were common myeloid progenitors (CMPs) and common dendritic cell progenitors (CDPs). Of interest, the main immune cells infected with LCMV Clone 13 (CL13) in the BM were CD11b/c+myeloid DCs. We next characterized CD11b+DCs that differentiated during chronic LCMV infection. These DCs displayed a less immunogenic phenotype than DCs in naive or acutely infected mice, showing low expression of CD80 but high expression of PD-L1, B7-H4, IDO, TGF-β, and IL-10. Consequently, these CD11b+DCs induced less effective CD8+T cells and more Foxp3+regulatory T (Treg) cells. Furthermore, CD11b+DCs generated during CL13 infection could not induce effective CD8+T cells specific to the antigens of newly invading pathogens. Our findings demonstrate that DCs generated from the BM during chronic viral infection cannot activate fully functional effector CD8+T cells specific to newly incoming antigens as well as persistent antigens themselves, suggesting a potential cause of the functional alterations in the T cell immune response during chronic viral infection.