Abstract Impaired CD8+ T cells have been implicated to play a role in the establishment of HCV persistent infection. HCV has evolved multiple strategies to avoid T cell responses. HCV core protein has been shown to contain immunomodulatory functions. To determine HCV core-mediated regulation of antigen-specific CD8+ T cell responses in vivo, a transgenic mouse where the expression of core protein is directed to the liver using the albumin (Alb) promoter was generated. Using this HCV core transgenic murine model system, we demonstrated that core-expressing mice failed to clear adenovirus-LacZ (Ad-LacZ) infection in the liver. Particularly, the generation of Ad-LacZ specific CD8+ T cells was impaired in the liver of HCV core transgenic mice having suppression of the production of IFN-gamma and TNF-alpha by CD8+ T cells and alteration of the production of the cytolytic protease, granzyme-B. Interestingly, HCV core transgenic mice exhibited enhanced expression of the inhibitory receptor PD-1 by Ad-LacZ specific CD8+ T cells and its ligand B7-H1 following Ad-LacZ infection. Importantly, blockade of the PD-1/B7-H1 inhibitory pathway using a B7-H1 blocking antibody in core transgenic mice enhances effector function of CD8+ T cells and clearance of Ad-LacZ-infected cells. It suggests that the regulation of the PD-1/B7-H1 inhibitory pathway is crucial for HCV core-mediated impaired T cell responses and viral persistence/maintenance. Also, these findings implicate that manipulation of PD-1/B7-H1 pathway may be a potential immunotherapy to enhance effector T cell responses during persistent infection.