The cytokine IFN-γ is a critical regulator of immune system development and function. Almost all leukocytes express the receptor for IFN-γ, yet each cell type elicits a different response to this cytokine. Cell type-specific effects of IFN-γ make it difficult to predict the outcomes of the systemic IFN-γ blockade and limit its clinical application, despite many years of research. To better understand the cell–cell interactions and cofactors that specify IFN-γ functions, we focused on the function of IFN-γ on CD8 T cell differentiation. We demonstrated that during bacterial infection, IFN-γ is a dominant paracrine trigger that skews CD8 T cell differentiation toward memory. This skewing is preferentially driven by contact-dependent T cell–T cell (T-T) interactions and the localized IFN-γ secretion among activated CD8 T cells in a unique splenic microenvironment, and is less sensitive to concurrent IFN-γ production by other immune cell populations such as natural killer (NK) cells. Modulation of CD8 T cell differentiation by IFN-γ relies on a nonconventional IFN-γ outcome that occurs specifically within 24 hours following infection. This is driven by IFN-γ costimulation by integrins at T-T synapses, and leads to synergistic phosphorylation of the proximal STAT1 molecule and accelerated IL-2 receptor down-regulation. This study provides evidence of the importance of context-dependent cytokine signaling and gives another example of how cell clusters and the microenvironment drive unique biology.