The pestivirus noncytopathic bovine viral diarrhea virus (BVDV) can suppress IFN production in the majority of cell types in vitro. However, IFN is detectable in serum during acute infection in vivo for ∼5–7 d, which correlates with a period of leucopoenia and immunosuppression. In this study, we demonstrate that a highly enriched population of bovine plasmacytoid dendritic cells (DCs) produced IFN in response to BVDV in vitro. We further show that the majority of the IFN produced in response to infection both in vitro and in vivo is type III IFN and acid labile. Further, we show IL-28B (IFN-λ3) mRNA is induced in this cell population in vitro. Supernatant from plasmacytoid DCs harvested postinfection with BVDV or recombinant bovine IFN-α or human IL-28B significantly reduced CD4+ T cell proliferation induced by tubercle bacillus Ag 85–stimulated monocyte-derived DCs. Furthermore, these IFNs induced IFN-stimulated gene expression predominantly in monocyte-derived DCs. IFN-treated immature DCs derived from murine bone marrow also had a reduced capacity to stimulate T cell proliferative responses to tubercle bacillus Ag 85. Immature DCs derived from either source had a reduced capacity for Ag uptake following IFN treatment that is dose dependent. Immunosuppression is a feature of a number of pestivirus infections; our studies suggest type III IFN production plays a key role in the pathogenesis of this family of viruses. Overall, in a natural host, we have demonstrated a link between the induction of type I and III IFN after acute viral infection and transient immunosuppression.