Type III interferon (IFN-lambda) has recently been shown to exert a significant antiviral impact against viruses in vertebrates. Avian leukosis virus subgroup J (ALV-J), which causes tumor disease and immunosuppression in infected chicken, is a retrovirus that is difficult to prevent and control because of a lack of vaccines and drugs. Here, we obtained chicken IFN-lambda (chIFN-lambda) using a silkworm bioreactor and demonstrated that chIFN-lambda has antiviral activity against ALV-J infection of both chicken embryo fibroblast cell line (DF1) and epithelial cell line (LMH). We found that chIFN-lambda triggered higher levels of particular type III interferon-stimulated genes (type III ISGs) including myxovirus resistance protein (Mx), viperin (RSAD2), and interferon-inducible transmembrane protein 3 (IFITM3) in DF1 and LMH cells. Furthermore, over-expression of Mx, viperin, and IFITM3 could inhibit ALV-J infection in DF1 and LMH cells. Therefore, these results suggested that the anti-ALV-J function of chIFN-lambda was specifically implemented by induction of expression of type III ISGs. Our data identified chIFN-lambda as a critical antiviral agent of ALV-J infection and provides a potentially and attractive platform for the production of commercial chIFN-lambda.