Expression of the PD-1 receptor on T cells has been shown to provide an important inhibitory signal that down-modulates peripheral effector responses in normal tissues and tumors. Further, PD-1 upregulation on chronically activated T cells can maintain them in a partially reversible inactive state. The function of PD-1 in the very early stages of T cell response to antigen in vivo has not been fully explored. Here, we use adoptive transfer of TCR transgenic cells into cognate-antigen expressing mice or mice expressing the antigen as foreign. We evaluate the role of PD-1 and its two B7 family ligands, B7-H1 (PD-L1) and B7-DC (PD-L2), in early fate decisions of CD8 ⁺ T cells. We also explore the potential of combining a Listeria monocytogenes-based vaccine (LM or LM-HA) with PD-1 signal blockade in the production of an effective anti-tumor response. Finally, we explore the effect of B7-DC on T cell responses against self-antigens. We show that PD-1 expression in response to antigen encounter in vivo is highly context dependent. Thus, CD8⁺ T cells specific for influenza hemagglutinin (HA) expressed as a microbial antigen in Listeria monocytogenes express virtually no PD-1 over their initial one-week expansion phase post infection. In marked contrast, CD8⁺ T cells responding to HA as a self antigen and becoming functionally tolerized express high levels of surface PD-1 by the time of their first cell division. Blockade of PD-1 or B7-H1, but not B7-DC, at the time of self-antigen encounter mitigates tolerance induction and results in CD8⁺ T cell differentiation into functional CTL. These findings demonstrate that, in addition to modulating effector functions in the periphery, B7-H1:PD-1 interactions regulate early T cell fate decisions. LM-HA can partially rescue T cell effector function which is further induced by PD-1 signal blockade. The combination therapy can break self-tolerance, thus it looks promising as an immunotherapy for cancer. Finally, we show that B7-DC can promote antigen-specific T cell division but inhibit IL-2 production, providing extra evidence for the potential existence of a second receptor for this molecule.