Although characterization of T cell exhaustion has unlocked powerful immunotherapies, the mechanisms sustaining adaptations of short-lived innate cells to chronic inflammatory settings remain unknown. During murine chronic viral infection, we found that concerted events in bone marrow and spleen mediated by type I interferon (IFN-I) and Toll-like receptor 7 (TLR7) maintained a pool of functionally exhausted plasmacytoid dendritic cells (pDCs). In the bone marrow, IFN-I compromised the number and the developmental capacity of pDC progenitors, which generated dysfunctional pDCs. Concurrently, exhausted pDCs in the periphery were maintained by self-renewal via IFN-I- and TLR7-induced proliferation of CD4^- subsets. On the other hand, pDC functional loss was mediated by TLR7, leading to compromised IFN-I production and resistance to secondary infection. These findings unveil the mechanisms sustaining a self-perpetuating pool of functionally exhausted pDCs and provide a framework for deciphering long-term exhaustion of other short-lived innate cells during chronic inflammation.