In response to infection, naïve CD8 ⁺ T (T _N ) cells yield a large pool of short-lived terminal effector (T _TE ) cells that eliminate infected host cells. In parallel, a minor population of stem cell-like central memory (T _CM ) cells forms, which has the capacity to maintain immunity after pathogen clearance. It has remained uncertain whether stem-like T _CM cells arise by dedifferentiation from a subset of cytolytic T _TE cells or whether priming generates stem-like cells capable of seeding the T _CM compartment and, if so, when cytolytic T _TE cells branch off. Here, we show that CD8 ⁺ T cells with stem-like properties, which are identified by the expression of TCF1 (encoded by Tcf7), are present across the primary response to infection. Priming programs T _N cells to undergo multiple cell divisions, over the course of which TCF1 expression is maintained. These TCF1 ⁺ cells further expand relatively independently of systemic inflammation, antigen dose, or affinity, and they quantitatively yield TCF1 ⁺ T _CM cells after pathogen clearance. Inflammatory signals suppress TCF1 expression in early divided TCF1 ⁺ cells. TCF1 down-regulation is associated with the irreversible loss of self-renewal capacity and the silencing of stem/memory genes, which precedes the stable acquisition of a T _TE state. TCF1 expression restrains cell cycling, explaining in part the limited expansion of TCF1 ⁺ relative to TCF1 ^- cells during the primary response. Thus, our data are consistent with terminal differentiation of effector cells being a step-wise process that is initiated by inflammation in primed stem-like cells, which would otherwise become central memory cells by default.