Type I and III interferons (IFNs) activate similar downstream signaling cascades, but unlike type I IFNs, type III IFNs (IFNλ) do not elicit strong inflammatory responses in vivo. Here, we examined the molecular mechanisms underlying this disparity. Type I and III IFNs displayed kinetic differences in expression of IFN-stimulated genes and proinflammatory responses, with type I IFNs preferentially stimulating expression of the transcription factor IRF1. Type III IFNs failed to induce IRF1 expression because of low IFNλ receptor abundance and insufficient STAT1 activation on epithelial cells and thus did not activate the IRF1 proinflammatory gene program. Rather, IFNλ stimulation preferentially induced factors implicated in tissue repair. Our findings suggest that IFN receptor compartmentalization and abundance confer a spatiotemporal division of labor where type III IFNs control viral spread at the site of the infection while restricting tissue damage; the transient induction of inflammatory responses by type I IFNs recruits immune effectors to promote protective immunity.