Immune responses are critical for defense against pathogens. However, prolonged viral infection can result in defective T cell immunity, leading to chronic viral infection. We studied immune activation in response to arenavirus infection during cholestasis using bile duct ligation (BDL). We monitored T cell responses, virus load and liver pathology markers after infection with lymphocytic choriomeningitis virus (LCMV). BDL mice failed to induce protective anti-viral immunity against LCMV and consequently exhibited chronic viral infection. BDL mice exhibited reduced anti-viral T cell immunity as well as reduced type 1 interferon production early after LCMV infection. Consistently, the presence of serum from BDL mice reduced the responsiveness of dendritic cell (DC) and T cell cultures when compared to Sham controls. Following fractionation and mass spectrometry analyses of sera, we identified several serum factors to be upregulated following BDL including bilirubin, bile acids, 78 kDa Glucose regulated protein (GRP78) and liver enzymes. Bilirubin and GRP78 were capable of inhibiting DC and T cell activation. In this work, we demonstrate that liver damage mediated by cholestasis results in defective immune induction following arenavirus infection.