Functional responses play a central role in the nature and stability of predator-prey population dynamics. Here we investigate how induced defenses affect predator functional responses. In experimental communities, prey (Paramecium) expressed two previously undocumented inducible defenses--a speed reduction and a width increase--in response to nonlethal exposure to predatory Stenostomum. Nonlethal exposure also changed the shape of the predator's functional response from Type II to Type III, consistent with changes in the density dependence of attack rates. Handling times were also affected by prey defenses, increasing at least sixfold. These changes show that induced changes in prey have a real defensive function. At low prey densities, induction led to lower attack success; at high prey densities, attack rates were actually higher for induced prey. However, induction increased handling times sufficiently that consumption rates of defended prey were lower than those of undefended prey. Modification of attack rate and handling time has important potential consequences for population dynamics; Type III functional responses can increase the stability of population dynamics and persistence because predation on small populations is low, allowing a relict population to survive. Simulations of a predator-prey population dynamic model revealed the stabilizing potential of the Type III response.