CD8 T cell killing of hepatitis C virus (HCV)‐infected hepatocytes is thought to contribute to liver damage during chronic HCV infection, whereas the participation of HCV‐nonspecific immune cells is unclear. To visualize the spatial relationship of HCV‐specific CD8 T cells with parenchymal target cells, and to examine their local functional activity in relation to hepatocellular necrosis and fibrosis, we used HLA tetramers and confocal microscopy in biopsies from 23 HLA‐A2 or HLA‐B7 patients with chronic HCV infection. Intrahepatic tetramer+ (HCV‐specific) CD8 T cells protected from hepatic necroinflammatory disease activity, independently of age, gender, viral load, and viral genotype. Indeed, tetramer+ cells were scattered in the liver within regions of weak fibrosis (low laminin expression) and low hepatocellular apoptosis (TUNEL method), and expressed IL‐10 but not IFNγ. By contrast, tetramer‐negative CD8 T cells were associated with active necroinflammatory liver disease, colocalized with strong laminin expression and hepatocellular apoptosis, and expressed more frequently IFNγ than IL‐10. Overall, liver regions harboring HCV‐specific CD8 T cells tended to be healthier than areas containing only inflammatory cells of undefined specificity. In conclusion, HCV‐specific IL‐10‐producing CD8 T cells, although not cytotoxic and unable to control viral replication, can attenuate hepatocellular necrosis, liver fibrosis, and inflammation mediated by bystander T cells, and may thus represent antigen‐induced regulatory CD8 T cells. Therapeutic modulation of the intrahepatic balance between specific and bystander CD8 T cells might be beneficial in patients with chronic hepatitis C. (HEPATOLOGY 2006;44:1607–1616.)