Listeria monocytogenes is a facultative intracellular pathogen capable of inducing a robust cell-mediated immune response to sub-lethal infection. The capacity of L. monocytogenes to escape from the phagosome and enter the host cell cytosol is paramount for the induction of long-lived CD8 T cell-mediated protective immunity. Here, we show that the impaired T cell response to L. monocytogenes confined within a phagosome is not merely a consequence of inefficient antigen presentation, but is the result of direct suppression of the adaptive response. This suppression limited not only the adaptive response to vacuole-confined L. monocytogenes, but negated the response to bacteria within the cytosol. Co-infection with phagosome-confined and cytosolic L. monocytogenes prevented the generation of acquired immunity and limited expansion of antigen-specific T cells relative to the cytosolic L. monocytogenes strain alone. Bacteria confined to a phagosome suppressed the production of pro-inflammatory cytokines and led to the rapid MyD88-dependent production of IL-10. Blockade of the IL-10 receptor or the absence of MyD88 during primary infection restored protective immunity. Our studies demonstrate that the presence of microbes within a phagosome can directly impact the innate and adaptive immune response by antagonizing the signaling pathways necessary for inflammation and the generation of protective CD8 T cells.