Tissue-resident memory T cells (TRM cells) are key elements of tissue immunity. Here, we investigated the role of the regulator of T cell receptor and cytokine signaling, Ptpn2, in the formation and function of TRM cells in skin. Ptpn2-deficient CD8+ T cells displayed a marked defect in generating CD69+ CD103+ TRM cells in response to herpes simplex virus type 1 (HSV-1) skin infection. This was accompanied by a reduction in the proportion of KLRG1− memory precursor cells and a transcriptional bias toward terminal differentiation. Of note, forced expression of KLRG1 was sufficient to impede TRM cell formation. Normalizing memory precursor frequencies by transferring equal numbers of KLRG1− cells restored TRM generation, demonstrating that Ptpn2 impacted skin seeding with precursors rather than downstream TRM cell differentiation. Importantly, Ptpn2-deficient TRM cells augmented skin autoimmunity but also afforded superior protection from HSV-1 infection. Our results emphasize that KLRG1 repression is required for optimal TRM cell formation in skin and reveal an important role of Ptpn2 in regulating TRM cell functionality.