Type III interferons, also known as IFN-lambda or IL-28/29, are a recently discovered family of IFNs related to both the type I IFNs and interleukin-10 family members. Interferon-lambda is functionally an interferon but structurally it is related to the interleukin-10 family. These novel cytokines are directly induced during viral infection like type-I interferons and signal through a similar JAK-STAT signaling pathway as type I IFN to activate the transcription of a similar set of IFN-stimulated genes (ISG) but use a separate receptor complex. ISG product induced by the type III family of IFNs are associated with immunomodulatory ability, antiviral activity and other effects. The antiviral and immunomodulatory effects of type III interferons make them interesting therapeutics for clinical use. In this review, we summarize the current state of knowledge about the biology of IFN-lambdas and their roles in immune responses via immunomodulatory and antiviral activity.