Interferon lambda-1 (IFN-lambda1/IL-29) is a member of the Type-III interferon family, which contains three ligands: IFN-lambda1, 2 and 3. These three ligands use the same unique heterodimeric receptor composed of CRF2-12 (IFN-lambda-R1/IL-28Ralpha) and CRF2-4 (IL10-R-beta) chains. Like their close relatives, the Type-I interferons, IFN-lambda1, 2 and 3, promote the phosphorylation of STAT1 and STAT2, induce the ISRE3 complex, elevate OAS and MxA expression and exhibit antiviral activity in vitro. Their use of the IL10-R-beta chain and their ability to phosphorylate STAT3, STAT4 and STAT5 suggested that they may also exhibit immunomodulatory activity; their antiviral action led us to hypothesize that this activity might be directed toward the Th1/Th2 system. Here, we have demonstrated that IFN-lambda1 altered the activity of Th cells in three separate experimental systems: (i) mitogen stimulation, (ii) mixed-lymphocyte reaction (MLR) and (iii) stimulation of naive T cells by monocyte-derived dendritic cells (mDC). In Con-A stimulation assays, the inclusion of IFN-lambda1 consistently led to markedly diminished levels of secreted interleukin (IL-13) with occasional coincident, modest elevation of secreted IFN-gamma. IL-13 secretion was 100-fold more sensitive to IFN-lambda1 than was IFN-gamma secretion. These observations were also made in the allogeneic two-way MLR. IFN-lambda1 was able to alter cytokine-mediated Th biasing and when naive T cells were exposed to allogeneic mDC that had been matured in the presence of IFN-lambda1, secreted IL-13 was again markedly and consistently reduced, whereas secreted IFN-gamma was largely unaltered. These functions were independent of IL-10. Our data support a hitherto unsuspected role for IFN-lambda1 in modulating the development of Th1 and Th2 cells, with an apparent emphasis on the diminution of IL-13 secretion.