Background & Aims: Modulation of the host innate immune response is an attractive means of inhibiting hepatitis C virus (HCV) replication. Having previously determined that expression of the interferon-sensitive gene (ISG)15 protease USP18 is increased in the liver biopsy specimens of patients who do not respond to interferon (IFN)-alfa therapy, we hypothesized that USP18 might hinder the ability of IFN to inhibit HCV replication. Methods: The role of USP18 in IFN antiviral activity was examined using an in vitro model of HCV replication that reproduces the full viral life cycle. USP18 was silenced specifically using small inhibitory RNAs (siRNAs), and the dose response of HCV replication and infectious virus production to IFN-alfa was measured. Results: The siRNA knockdown of USP18 in human cells consistently potentiated the ability of IFN to inhibit HCV-RNA replication and infectious virus particle production by a factor of 1–2 log 10. USP18 knockdown also resulted in a number of cellular changes consistent with increased sensitivity to IFN. Decreasing USP18 expression led to increased cellular protein ISGylation in response to exogenous IFN-alfa, prolonged tyrosine phosphorylation of signal transducer and activation of transcription (STAT1), and a general enhancement of IFN-stimulated gene expression. Conclusions: These data suggest that USP18 modulates the anti-HCV type I IFN response, and is a possible therapeutic target for the treatment of HCV infection.