The factors that regulate the contraction of the CD8 T cell response and the magnitude of the memory cell population against localized mucosal infections such as influenza are important for generation of efficient vaccines but are currently undefined. In this study, we used a mouse model of influenza to demonstrate that the absence of gamma interferon (IFN-γ) or IFN-γ receptor 1 (IFN-γR1) leads to aberrant contraction of antigen-specific CD8 T cell responses. The increased accumulation of the effector CD8 T cell population was independent of viral load. Reduced contraction was associated with an increased fraction of CD8 T cells expressing the interleukin-7 receptor (IL-7R) at the peak of the response, resulting in enhanced numbers of memory/memory precursor cells in IFN-γ(-/-) and IFN-γR(-/-) compared to wild-type (WT) mice. Blockade of IL-7 within the lungs of IFN-γ(-/-) mice restored the contraction of influenza virus-specific CD8 T cells, indicating that IL-7R is important for survival and is not simply a consequence of the lack of IFN-γ signaling. Finally, enhanced CD8 T cell recall responses and accelerated viral clearance were observed in the IFN-γ(-/-) and IFN-γR(-/-) mice after rechallenge with a heterologous strain of influenza virus, confirming that higher frequencies of memory precursors are formed in the absence of IFN-γ signaling. In summary, we have identified IFN-γ as an important regulator of localized viral immunity that promotes the contraction of antigen-specific CD8 T cells and inhibits memory precursor formation, thereby limiting the size of the memory cell population after an influenza virus infection.