Recent studies have shown that a single‐nucleotide polymorphism upstream of the interleukin‐28B (IL28B) gene plays a major role in predicting therapeutic response in hepatitis C virus (HCV)‐infected patients treated with pegylated interferon (PEG‐IFN)/ribavirin. We sought to investigate the mechanism of the IL28B polymorphism, specifically as it relates to early HCV viral kinetics, IFN pharmacokinetics, IFN pharmacodynamics, and gene expression profiles. Two prospective cohorts (human immunodeficiency virus HIV/HCV‐coinfected and HCV‐monoinfected) completing treatment with IFN/ribavirin were enrolled. Patients were genotyped at the polymorphic site rs12979860. In the HIV/HCV cohort, frequent serum sampling was completed for HCV RNA and IFN levels. DNA microarray of peripheral blood mononuclear cells and individual expression of IFN‐stimulated genes (ISGs) were quantified on IFN therapy. The IL28B‐favorable (CC) genotype was associated with improved therapeutic response compared with unfavorable (CT or TT) genotypes. Patients with a favorable genotype had greater first‐ and second‐phase viral kinetics (P = 0.004 and P = 0.036, respectively), IFN maximum antiviral efficiency (P = 0.007) and infected cell death loss (P = 0.009) compared with unfavorable genotypes. Functional annotation analysis of DNA microarray data was consistent with depressed innate immune function, particularly of natural killer cells, from patients with unfavorable genotypes (P <0.004). Induction of innate immunity genes was also lower in unfavorable genotypes. ISG expression at baseline and induction with IFN was independent of IL28B genotype. Conclusion: Carriers of the IL28B‐favorable genotype were more likely to have superior innate immune response to IFN therapy compared with unfavorable genotypes, suggesting that the unfavorable genotype has aberrant baseline induction of innate immune response pathways resulting in impaired virologic response. IL28B genotype is associated with more rapid viral kinetics and improved treatment response outcomes independent of ISG expression. (HEPATOLOGY 2012)