Yellow fever virus (YFV) is an arthropod-borne flavivirus, infecting ~200,000 people worldwide annually and causing about 30,000 deaths. The live-attenuated vaccine strain, YFV-17D, has significantly contributed in controlling the global burden of yellow fever worldwide. However, the viral and host contributions to YFV-17D attenuation remain elusive. Type I (IFN-α/β) and type II interferon (IFN-γ) signaling have been shown to be mutually supportive in controlling YFV-17D infection despite distinct mechanisms of action on viral infection However, it remains unclear how type III IFN (IFN-λ) integrates into this anti-viral system.  Here, we report that while wild-type (WT) and IFN-λ receptor knock-out (λR -/-) mice were largely resistant to YFV-17D, deficiency in type I IFN-signaling resulted in robust infection. Although IFN-α/β receptor knock-out (α/βR -/-) mice survived the infection, mice with a combined deficiency in both type I and III IFN-signaling were hyper-susceptible to YFV-17D and succumbed to the infection. Mortality was associated with viral neuroinvasion and increased permeability of the blood brain barrier (BBB).  α/βR -/- λR -/- mice also exhibited distinct changes in the frequencies of multiple immune cell lineages, impaired T-cell activation and severe perturbation of the pro-inflammatory cytokine balance. Taken together, our data highlight that type III IFN has critical immunomodulatory and neuroprotective functions that prevent viral neuroinvasion during active YFV-17D replication. Type III IFN thus likely represents a safeguard mechanism crucial for controlling YFV-17D infection and contributing to shaping vaccine immunogenicity.