Type I interferon (IFN-I) strongly inhibits viral replication and is a crucial factor in controlling virus infections and diseases. Cellular activation through pattern recognition receptors induces interferon production in a wide variety of hematopoietic and nonhematopoietic cell types, including dendritic cells, fibroblasts, hepatocytes, and cells of neuronal origin. The relative contribution of hematopoietic and nonhematopoietic cells to the overall interferon response is an important issue which has not been fully addressed. Using irf7(-/-) and wild-type bone marrow chimeras we analyzed the contribution of IFN-I from bone marrow-derived sources in the control of viral infections and immunopathology in mice. We found that during systemic cytopathic virus infection, hematopoietic cells were essential for production of IFN-I, inhibition of viral spread to peripheral organs, and limiting cell damage. In a model of autoimmune diabetes induced by noncytopathic virus infection, hematopoietic cell-derived IFN-I was essential for CD8(+) T cell-dependent cytotoxicity in pancreatic beta-islet cells and induction of diabetes. These data suggest that during systemic viral infection primarily hematopoietic cell-derived IFN-I controls viral replication and viral-induced disease.