Yellow fever virus (YFV) is an arthropod-borne flavivirus, infecting ~200,000 people worldwide annually and causing about 30,000 deaths. The live attenuated vaccine strain, YFV-17D, has significantly contributed in controlling the global burden of yellow fever worldwide. However, the viral and host contributions to YFV-17D attenuation remain elusive. Type I interferon (IFN-α/β) signaling and type II interferon (IFN-γ) signaling have been shown to be mutually supportive in controlling YFV-17D infection despite distinct mechanisms of action in viral infection. However, it remains unclear how type III IFN (IFN-λ) integrates into this antiviral system. Here, we report that while wild-type (WT) and IFN-λ receptor knockout (λR−/−) mice were largely resistant to YFV-17D, deficiency in type I IFN signaling resulted in robust infection. Although IFN-α/β receptor knockout (α/βR−/−) mice survived the infection, mice with combined deficiencies in both type I signaling and type III IFN signaling were hypersusceptible to YFV-17D and succumbed to the infection. Mortality was associated with viral neuroinvasion and increased permeability of the blood-brain barrier (BBB). α/βR−/− λR−/− mice also exhibited distinct changes in the frequencies of multiple immune cell lineages, impaired T-cell activation, and severe perturbation of the proinflammatory cytokine balance. Taken together, our data highlight that type III IFN has critical immunomodulatory and neuroprotective functions that prevent viral neuroinvasion during active YFV-17D replication. Type III IFN thus likely represents a safeguard mechanism crucial for controlling YFV-17D infection and contributing to shaping vaccine immunogenicity.