T cell surveillance is often effective against virus-associated tumors because of their high immunogenicity. It is not clear why surveillance occasionally fails, particularly against hepatitis B virus- or hepatitis C virus-associated hepatocellular carcinoma (HCC). We established a transgenic murine model of virus-induced HCC by hepatocyte-specific adenovirus-induced activation of the oncogenic SV40 large T antigen (TAg). Adenovirus infection induced cytotoxic T lymphocytes (CTLs) targeted against the virus and TAg, leading to clearance of the infected cells. Despite the presence of functional, antigen-specific T cells, a few virus-infected cells escaped immune clearance and progressed to HCC. These cells expressed TAg at levels similar to HCC isolated from neonatal TAg-tolerant mice, suggesting that CTL clearance does not select for cells with low immunogenicity. Virus-infected mice revealed significantly greater T cell infiltration in early-stage HCC compared with that in late-stage HCC, demonstrating progressive local immune suppression through inefficient T cell infiltration. Programmed cell death protein-1 (PD-1) and its ligand PD-L1 were expressed in all TAg-specific CD8+ T cells and HCC, respectively, which contributed to local tumor-antigen-specific tolerance. Thus, we have developed a model of virus-induced HCC that may allow for a better understanding of human HCC.