Type I (IFN-alpha/beta) and type III (IFN-lambdas) IFNs are important components of the host antiviral response. Although type III IFNs possess intrinsic antiviral activity similar to that of type I IFNs, they signal through a specific unique receptor complex, and their functional importance for antiviral resistance is largely uncharacterized. Here, we report the first virus defense mechanism that directly targets type III IFNs. Y136 from Yaba-like disease virus, a yatapoxvirus, is a secreted glycoprotein related to protein B18 from Vaccinia virus, a known type I IFN-binding protein and a member of the Ig superfamily. Surprisingly, whereas B18 inhibits only type I IFNs, Y136 inhibits both type I and type III IFNs. Y136 inhibits IFN-induced signaling and suppresses IFN-mediated biological activities including up-regulation of MHC class I antigen expression and induction of the antiviral state. These data demonstrate that poxviruses have developed unique strategies to counteract IFN-mediated antiviral protection and highlight the importance of type III IFNs in antiviral defense. These results suggest that type III IFNs may be an effective treatment for some poxviral infections.