The IFNL3 (IL28B) gene has received immense attention in the hepatitis C virus (HCV) field as multiple independent genome-wide association studies identified a strong association between polymorphisms near the IFNL3 gene and HCV clearance. However, the mechanism underlying this association has remained elusive. In this study, we report the identification of a functional polymorphism (rs4803217) located in the 3′ untranslated region (3′ UTR) of the IFNL3 mRNA that dictates transcript stability. This polymorphism influences AU-rich element-mediated decay as well as the binding of HCV-induced microRNAs during infection. Together, these pathways mediate robust repression of the unfavorable IFNL3 genotype. These data reveal a novel mechanism by which HCV attenuates the antiviral response and uncover new potential therapeutic targets for HCV treatment