Hepatitis C virus (HCV) infection is a major cause of chronic liver disease worldwide. The current standard therapy for chronic hepatitis C (CHC) consists of a combination of pegylated IFN alpha (pegIFNα) and ribavirin. It achieves a sustained viral clearance in only 50–60% of patients. To learn more about molecular mechanisms underlying treatment failure, we investigated IFN-induced signaling in paired liver biopsies collected from CHC patients before and after administration of pegIFNα. In patients with a rapid virological response to treatment, pegIFNα induced a strong up-regulation of IFN-stimulated genes (ISGs). As shown previously, nonresponders had high expression levels of ISGs before therapy. Analysis of posttreatment biopsies of these patients revealed that pegIFNα did not induce expression of ISGs above the pretreatment levels. In accordance with ISG expression data, phosphorylation, DNA binding, and nuclear localization of STAT1 indicated that the IFN signaling pathway in nonresponsive patients is preactivated and refractory to further stimulation. Some features characteristic of nonresponders were more accentuated in patients infected with HCV genotypes 1 and 4 compared with genotypes 2 and 3, providing a possible explanation for the poor response of the former group to therapy. Taken together with previous findings, our data support the concept that activation of the endogenous IFN system in CHC not only is ineffective in clearing the infection but also may impede the response to therapy, most likely by inducing a refractory state of the IFN signaling pathway.