Bone infection contributing to inflammatory osteolysis is common in orthopedic surgery. The dynamic balance between bone formation and bone resorption is destroyed due to excessive osteoclast fusion and differentiation, which results in severe bone matrix loss. Many therapeutic approaches that restrain osteoclast formation and function act as efficient ways to prevent inflammatory bone erosion. We have demonstrated for the first time that dendritic cells-derived interferon-λ1 (IFN-λ1) inhibited inflammatory bone destruction in vivo and explored its underlying mechanisms on osteoclast formation in vitro. We found that IFN-λ1 was highly expressed in infectious bone tissue compared with that of non-infectious bone tissue. Additionally, dendritic cells marker genes such as CD80, CD86, and CD1a were higher expressed in infectious bone tissue than that of non-infectious bone tissue. Dendritic cells that were pretreated with LPS showed high expression of IFN-λ1. Moreover, conditioned medium of LPS-pretreated dendritic cells significantly inhibited osteoclast differentiation, as determined by TRAP staining assay. This suppressive effect was reversed by adding an IFN-λ1 monoclonal antibody. It was also investigated whether exogenous IFN-λ1 restrained osteoclastogenesis, bone resorption, F-actin ring formation, osteoclast-specific gene expression, release of pro-inflammatory cytokines, and translocation of p65 and NFATc1 by preventing the NF-κB signaling pathway and NLRP3 inflammasome formation, as well as by inducing the JAK-STAT signaling pathways in vitro. In vivo study indicated that IFN-λ1 prevents lipopolysaccharide (LPS)-induced inflammatory bone destruction by inhibiting excessive osteoclast fusion and bone resorption activity. In conclusion, our findings confirmed that dendritic cells-derived IFN-λ1 could attenuate osteoclast formation and bone resorptive activity in vitro and in vivo. These novel findings pave the way for the use of exogenous IFN-λ1 as a potential therapeutic treatment for excessive osteoclast-related diseases, such as inflammatory osteolysis, by regulating osteoclastogenesis to maintain the dynamic balance between bone formation and bone resorption.