Interferons (IFNs) are essential components of the antiviral defense system of vertebrates. In mammals, functional receptors for type III IFN (lambda interferon [IFN-λ]) are found mainly on epithelial cells, and IFN-λ was demonstrated to play a crucial role in limiting viral infections of mucosal surfaces. To determine whether IFN-λ plays a similar role in birds, we produced recombinant chicken IFN-λ (chIFN-λ) and we used the replication-competent retroviral RCAS vector system to generate mosaic-transgenic chicken embryos that constitutively express chIFN-λ. We could demonstrate that chIFN-λ markedly inhibited replication of various virus strains, including highly pathogenic influenza A viruses, in ovo and in vivo, as well as in epithelium-rich tissue and cell culture systems. In contrast, chicken fibroblasts responded poorly to chIFN-λ. When applied in vivo to 3-week-old chickens, recombinant chIFN-λ strongly induced the IFN-responsive Mx gene in epithelium-rich organs, such as lungs, tracheas, and intestinal tracts. Correspondingly, these organs were found to express high transcript levels of the putative chIFN-λ receptor alpha chain (chIL28RA) gene. Transfection of chicken fibroblasts with a chIL28RA expression construct rendered these cells responsive to chIFN-λ treatment, indicating that receptor expression determines cell type specificity of IFN-λ action in chickens. Surprisingly, mosaic-transgenic chickens perished soon after hatching, demonstrating a detrimental effect of constitutive chIFN-λ expression. Our data highlight fundamental similarities between the IFN-λ systems of mammals and birds and suggest that type III IFN might play a role in defending mucosal surfaces against viral intruders in most if not all vertebrates.