The discovery that type I interferon (IFN-alpha/beta) inhibited tumor cell growth was welcomed initially with great excitement as it rapidly became a U.S. Food and Drug Administration-approved drug to treat several forms of cancer. In time, this enthusiasm diminished as severe toxicity associated with IFN-alpha administration, resistance to the therapy, or less than optimal responses became evident in cancer patients, thus restricting its clinical use and reducing its potential as an anticancer drug. The recent discovery of a third type of IFN [IFN-lambda/interleukin (IL)-29/IL-28], which shares the same biological properties of type I IFNs, opens the door for evaluating the therapeutic potential of IFN-lambda as it uses a distinct receptor complex whose expression, unlike type I IFN receptors, is restricted to cells of specific lineage. It is unclear whether the mechanism by which type III IFNs restrict tumor cell proliferation is different or the same from the one utilized by type I IFN. Nevertheless, accumulating evidence as described in this review suggests that, in contrast to IFN-alpha therapy, IFN-lambda therapy could be less toxic and suitable for certain types of malignancies as not all cells are responsive to this cytokine.