Immune cells sense microbial products through Toll-like receptors (TLR), which trigger host defense responses including type 1 interferons (IFNs) secretion. A coding polymorphism in the protein tyrosine phosphatase nonreceptor type 22 (PTPN22) gene is a susceptibility allele for human autoimmune and infectious disease. We report that Ptpn22 selectively regulated type 1 IFN production after TLR engagement in myeloid cells. Ptpn22 promoted host antiviral responses and was critical for TLR agonist-induced, type 1 IFN-dependent suppression of inflammation in colitis and arthritis. PTPN22 directly associated with TNF receptor-associated factor 3 (TRAF3) and promotes TRAF3 lysine 63-linked ubiquitination. The disease-associated PTPN22W variant failed to promote TRAF3 ubiquitination, type 1 IFN upregulation, and type 1 IFN-dependent suppression of arthritis. The findings establish a candidate innate immune mechanism of action for a human autoimmunity "risk" gene in the regulation of host defense and inflammation.