Genetic polymorphisms in IFNL4 have been shown to predict responses to IFN-alpha-based therapy in hepatitis C virus (HCV)-infected patients. The IFNL4-Delta G genotype, which encodes functional IFN-lambda 4 protein, is associated with a poor treatment response. In the present study, we investigated the induction and biological effects of IFN-lambda 4 in HCV-infected hepatocytes and their association with responsiveness to IFN-alpha. We also studied the effects of direct-acting antiviral (DAA) treatment on IFN-lambda 4 expression and IFN-alpha responsiveness. HCV infection induced IFN-lambda 4 expression at mRNA and protein levels in primary human hepatocytes (PHHs). In hepatoma cells, IFNL4 gene transfection or recombinant IFN-lambda 4 protein treatment robustly increased the protein levels of ISG15 and USP18 in an IFNLR1-dependent manner and potently blocked IFN-alpha signalling. The ISG15/USP18-mediated IFN-alpha unresponsiveness was demonstrated by transfection of siRNAs targeting ISG15 and/or USP18. This potent IFN-lambda 4 effect was related to prolonged ISG expression after IFNL4 gene transfection. DAA treatment of HCV-infected PHHs reduced the expression of IFN-lambda s, including IFN-lambda 4, and restored IFN-alpha responsiveness. These results demonstrate that virus-induced IFN-lambda 4 potently blocks IFN-alpha signalling by inducing high protein levels of ISG15 and USP18. Moreover, the data clearly demonstrate that DAA therapy restores IFN-alpha responsiveness in HCV-infected cells.