The emergence of West Nile virus (WNV) in the Western Hemisphere is marked by the spread of pathogenic lineage I strains, which differ from typically avirulent lineage II strains. To begin to understand the virus-host interactions that may influence the phenotypic properties of divergent lineage I and II viruses, we compared the genetic, pathogenic, and alpha/beta interferon (IFN-alpha/beta)-regulatory properties of a lineage II isolate from Madagascar (MAD78) with those of a new lineage I isolate from Texas (TX02). Full genome sequence analysis revealed that MAD78 clustered, albeit distantly, with other lineage II strains, while TX02 clustered with emergent North American isolates, more specifically with other Texas strains. Compared to TX02, MAD78 replicated at low levels in cultured human cells, was highly sensitive to the antiviral actions of IFN in vitro, and demonstrated a completely avirulent phenotype in wild-type mice. In contrast to TX02 and other pathogenic forms of WNV, MAD78 was defective in its ability to disrupt IFN-induced JAK-STAT signaling, including the activation of Tyk2 and downstream phosphorylation and nuclear translocation of STAT1 and STAT2. However, replication of MAD78 was rescued in cells with a nonfunctional IFN-alpha/beta receptor (IFNAR). Consistent with this finding, the virulence of MAD78 was unmasked upon infection of mice lacking IFNAR. Thus, control of the innate host response and IFN actions is a key feature of WNV pathogenesis and replication fitness.