The recently discovered interferon lambda 4 (IFN-λ4) is a new member of the human type III interferons which could induce a strong antiviral effect through the JAK-STAT cascade. However, hepatitis C virus (HCV) patients who are capable of expressing IFN-λ4 usually have poor response to IFN-α treatment, and the mechanism behind this paradox remains unknown. Here, we reported that IFN-λ4 desensitized IFN-α-stimulated JAK-STAT signalling. Microarray analysis revealed that IFN-λ4 could induce ubiquitin specific peptidase 18 (USP18), a known inhibitor of the type I IFN signalling pathway, in a more sustained pattern compared with type I interferon induction. Moreover, only HCV genotype 1b but not 2a replicon cells pretreated with IFN-λ4 had an attenuated response to type I IFN treatment, which might be due to the different level of USP18 expression. Consistently, knockdown of USP18 in HCV genotype 1b-containing replicon cells reversed the resistance induced by IFN-λ4 and promoted viral clearance. Finally, IFN-λ4 is also strongly associated with the poor response to IFN-α in a Chinese HCV genotype 1b cohort. In conclusion, these data indicate that IFN-λ4 attenuates the response of HCV genotype 1b to IFN-α therapy and inhibits the JAK-STAT signalling pathway by inducing USP18 expression.