IFN-λ is a type III interferon (IFN) with pleiotropic functions in modulating immune responses. To address its function in autoimmune neuroinflammation, we evaluated the development and progression of experimental autoimmune encephalitis (EAE) in IFNLR1KO and C57Bl/6 (WT) mice following immunization with MOG peptide. The results show that mice developed significantly more severe EAE than WT littermates with a similar day of onset, suggesting the potential of IFN-λ in reducing disease severity. We next interrogated whether IFN-λ differentially modulates EAE induced by encephalitogenic Th1 cells or Th17 cells. Encephalitogenic Th1 or Th17 generated from WT donors were transferred into WT or recipient mice. Whereas encephalitogenic Th1 cells induced more severe EAE in than WT recipients, the disease severity induced by encephalitogenic Th17 cells was similar. Additionally, in vitro experiments showed that macrophages promoted the expansion of myelin peptide-reactive Th17 cells but not Th1 cells. Early in the disease, the spinal cords of EAE mice displayed a significantly greater proportion of Ly6CLy6G cells with CXCR2CD62L phenotype, indicating activated neutrophils. These findings suggest that IFN-λ signaling restrains activation and migration of neutrophils to the CNS, potentially attenuating neutrophil-mediated disease progression in autoimmune neuroinflammation. Recombinant IFN-λ can be used as a potential therapeutic target for treatment of patients with multiple sclerosis as it has fewer side effects due to the restricted expression of its receptor.