Bats are known to harbor a number of emerging and re-emerging zoonotic viruses, many of which are highly pathogenic in other mammals but result in no clinical symptoms in bats. The ability of bats to coexist with viruses may be the result of rapid control of viral replication early in the immune response. IFNs provide the first line of defense against viral infection in vertebrates. Type III IFNs (IFN-λs) are a recently identified IFN family that share similar antiviral activities with type I IFNs. To our knowledge, we demonstrate the first functional analysis of type III IFNs from any species of bat, with the investigation of two IFN-λ genes from the pteropid bat, Pteropus alecto. Our results demonstrate that bat type III IFN has similar antiviral activity to type I and III IFNs from other mammals. In addition, the two bat type III IFNs are differentially induced relative to each other and to type I IFNs after treatment or transfection with synthetic dsRNA. Infection with the bat paramyxovirus, Tioman virus, resulted in no upregulation of type I IFN production in bat splenocytes but was capable of inducing a type III IFN response in three of the four bats tested. To our knowledge, this is the first report to describe the simultaneous suppression of type I IFN and induction of type III IFN after virus infection. These results may have important implications for the role of type III IFNs in the ability of bats to coexist with viruses.