Oncolytic viruses (OVs) comprise an emerging cancer therapeutic modality whose activity involves both direct tumor cell lysis and the induction of immunogenic cell death (ICD). Cellular proteins released from the OV-lysed tumor cells, known as damage-associated molecular patterns and tumor-associated antigens, activate dendritic cells and elicit adaptive antitumor immunity. Interaction with the innate immune system and the development of long-lasting immune memory also contribute to OV-induced cell death. The degree to which the ICD component contributes to the clinical efficacy of OV therapy is still unclear. Modulation of a range of immune interactions may be beneficial or detrimental in nature and the interactions depend on the specific tumor, the site and extent of the disease, the immunosuppressive tumor microenvironment, the OV platform, the dose, time, and delivery conditions, as well as individual patient responses. To enhance the contribution of ICD, OVs have been engineered to express immunostimulatory genes and strategies have been developed to combine OV therapy with chemo- and immune-based therapeutic regimens. However, these approaches carry the risk that they may also be tolerogenic depending on their levels and the presence of other cytokines, their direct antiviral effects, and the timing and conditions of their expression. The contribution of autophagy to adaptive immunity, the ability of the OVs to kill cancer stem cells, and the patient’s baseline immune status are additional considerations. This review focuses on the complex and as yet poorly understood balancing act that dictates the outcome of OV therapy. We summarize current understanding of the OVs’ function in eliciting antitumor immunity and its relationship to therapeutic efficacy. Also discussed are the criteria involved in restraining antiviral immune responses and minimizing pathology while promoting antitumor immunity to override immune tolerance.