T cell exhaustion and loss of memory potential occur during many chronic viral infections and cancer. We investigated when during chronic viral infection virus-specific CD8 T cells lose the potential to form memory. Virus-specific CD8 T cells from established chronic infection were unable to become memory CD8 T cells if removed from infection. However, at earlier stages of chronic infection, these virus-specific CD8 T cells retained the potential to partially or fully revert to a memory differentiation program after transfer to infection-free mice. Conversely, effector CD8 T cells primed during acute infection were not protected from exhaustion if transferred to a chronic infection. We also tested whether memory and exhausted CD8 T cells arose from different subpopulations of effector CD8 T cells and found that only the KLRG1^lo memory precursor subset gave rise to exhausted CD8 T cells. Together, these studies demonstrate that CD8 T cell exhaustion is a progressive developmental process. Early during chronic infection, the fate of virus-specific CD8 T cells remains plastic, while later, exhausted CD8 T cells become fixed in their differentiation state. Moreover, exhausted CD8 T cells arise from the memory precursor and not the terminally differentiated subset of effector CD8 T cells. These studies have implications for our understanding of senescence versus exhaustion and for therapeutic interventions during chronic infection.