Interferon gamma (IFN{gamma}) produced by CD4 T cells is required for immune containment of Mycobacterium tuberculosis (Mtb) infection. Despite this, IFN{gamma} plays a minor role in CD4 T cell-mediated immunity within the lung. In this study, we use a recently-developed murine model of physiologic Mtb infection coupled with advanced quantitative imaging to demonstrate that IFN{gamma} production by Mtb-specific T cells is rapidly extinguished within the granuloma, but not in unaffected areas of the lung. This is mediated via localized immunosuppression through cell-intrinsic TGF{beta} signaling in effector T helper 1 cells within the granuloma, and blockade of TGF{beta} signaling in T cells results in improved immune cell function and decreased pulmonary bacterial burden. These findings uncover a potent immunosuppressive mechanism associated with Mtb infection and provide potential targets for host-directed therapy.