CD8+ T cell exhaustion is a major barrier to current anti-cancer immunotherapies. Despite this, the developmental biology of exhausted CD8+ T cells (Tex) remains poorly defined, restraining improvement of strategies aimed at “re-invigorating” Tex cells. Here, we defined a four-cell-stage developmental framework for Tex cells. Two TCF1+ progenitor subsets were identified, one tissue restricted and quiescent and one more blood accessible, that gradually lost TCF1 as it divided and converted to a third intermediate Tex subset. This intermediate subset re-engaged some effector biology and increased upon PD-L1 blockade but ultimately converted into a fourth, terminally exhausted subset. By using transcriptional and epigenetic analyses, we identified the control mechanisms underlying subset transitions and defined a key interplay between TCF1, T-bet, and Tox in the process. These data reveal a four-stage developmental hierarchy for Tex cells and define the molecular, transcriptional, and epigenetic mechanisms that could provide opportunities to improve cancer immunotherapy. Display omitted •Ly108 and CD69 define four Tex subsets linked in a hierarchical developmental pathway•Two TCF1+ subsets, effector-like and terminally exhausted subsets, are identified•Key transcriptional, epigenetic, and biological changes define subset transitions•TCF1, T-bet, and Tox coordinate Tex subset development and dynamics Beltra et al. define a hierarchical developmental pathway for CD8+ T cell exhaustion, revealing four stages and multistep transcriptional and epigenetic dynamics underlying subset transitions and subset-associated biological changes.