CD8+ T cell responses to chronic infections often become functionally impaired, a state known as 'exhaustion’, which facilitates disease progression and prevents the formation of durable memory. However, the individual contributions of continuous high antigen levels and chronic inflammation on the impaired CD8+ T cell memory development remain incompletely understood. To dissect these factors, we utilised a previously developed a chronic Lymphocytic Choriomeningitis Virus (LCMV) infection system that allowed us to selectively modulate antigen presentation without altering the overall inflammatory milieu or viral persistence. Using this model, we show that CD8+ T cells exposed to low antigen levels amidst ongoing inflammation do not acquire hallmark features of exhaustion, including high expression of PD-1 and TOX while retaining robust cytokine production. Single-cell RNA sequencing further revealed that these cells acquire an effector memory T cell phenotype in lymphoid organs and give rise to cytotoxic tissue-resident memory T cells in peripheral tissues. Strikingly, the emergence of these T cell subsets coincides with increased host mortality, which could be rescued by CD8⁺ T cell depletion. Together, our findings demonstrate that chronic inflammation can sustain functional effector T cells in the absence of high antigen, leading to severe immunopathology. Further, our model offers a powerful platform to disentangle the effects of antigen and inflammation on CD8⁺ T cell differentiation and highlights the role of exhaustion as a protective adaptation to limit immunopathology.