T he etiology and pathogenesis of bile duct obstruction in children with biliary atresia are largely unknown. We have previously reported that, despite phenotypic heterogeneity, genomic signatures of livers from patients display a proinflammatory phenotype. Here, we address the hypothesis that production of IFN-γ is a key pathogenic mechanism of disease using a mouse model of rotavirus-induced biliary atresia. We found that rotavirus infection of neonatal mice has a unique tropism to bile duct cells, and it triggers a hepatobiliary inflammation by IFN-γ–producing CD4⁺ and CD8⁺ lymphocytes. The inflammation is tissue specific, resulting in progressive jaundice, growth failure, and greater than 90% mortality due to obstruction of extrahepatic bile ducts. In this model, the genetic loss of IFN-γ did not alter the onset of jaundice, but it remarkably suppressed the tissue-specific targeting of T lymphocytes and completely prevented the inflammatory and fibrosing obstruction of extrahepatic bile ducts. As a consequence, jaundice resolved, and long-term survival improved to greater than 80%. Notably, administration of recombinant IFN-γ led to recurrence of bile duct obstruction following rotavirus infection of IFN-γ–deficient mice. Thus, IFN-γ–driven obstruction of bile ducts is a key pathogenic mechanism of disease and may constitute a therapeutic target to block disease progression in patients with biliary atresia.