The COVID-19 crisis has compelled many organizations to implement full-time telework for their employees in a bid to prevent a transmission of the virus. At the same time, the volatile COVID-19 situation presents unique, unforeseen daily disruptive task setbacks that divert employees' attention from routinized work tasks and require them to respond adaptively and effortfully. Yet, little is known about how telework employees react to such complex demands and regulate their work behaviors while working from home. Drawing on Hobfoll's (1989) conservation of resources (COR) theory, we develop a multilevel, two-stage moderated-mediation model arguing that daily COVID-19 task setbacks are stressors that would trigger a resource loss process and will thus be positively related to the employee's end-of-day emotional exhaustion. The emotionally exhausted employee then enters a resource preservation mode that precipitates a positive relationship between end-of-day exhaustion and next-day work withdrawal behaviors. Based on COR, we also predict that the relation between daily COVID-19 task setbacks and exhaustion would be more positive in telework employees who have higher (vs. lower) task interdependence with coworkers, but organizations could alleviate the positive relation between end-of-day exhaustion and next-day work withdrawal behavior by providing employees with higher (vs. lower) telework task support. We collected daily experience-sampling data over 10 workdays from 120 employees (Level 1, n = 1,022) who were teleworking full-time due to the pandemic lockdown. The results generally supported our hypotheses, and their implications for scholars and managers during and beyond the pandemic are discussed.