The field of oncolytic virus (OV) therapy is an innovative and evolving science, taking advantage of the ability of select viruses to preferentially infect and kill human tumor cells. However, the contribution of the tumor microenvironment, and especially the induced innate immune responses to both the tumor and the virus, has been demonstrated to be a major player in the success of OV therapies. Innate immunity and inflammation in particular can have opposing effects; these can augment OV therapy by enhancing tumor destruction, yet can also recognize and clear the invading virus to significantly hinder viral dissemination through the tumor tissues. This review considers how inflammation and innate immunity impinge on current OV candidates to either facilitate or hinder virotherapy. Novel approaches that modulate or harness the innate immune system to specifically enhance OV-mediated tumor destruction are also discussed.