The host response to viral infections initiates with expression of IFNs and antiviral factors that combat infection. However, return to homeostasis is important, as unrestrained IFN production results in pathology. Post-transcriptional regulation of immune genes has been implicated in resolution of IFN responses. IFN-λ is an important mediator of antiviral protection in HCV infection. We have previously shown that expression of IFNL is regulated post-transcriptionally through a functional SNP (rs4803217) within the 3'UTR of IFNL3, which affects mRNA stability and correlates with HCV clearance or persistence depending on the rs4803217 genotype in infected patients. This is mediated by miRNAs and AU-rich elements. Here, proteomic screens and RNA immunoprecipitation revealed that the short isoform of zinc-finger antiviral protein (ZAP, ZC3HAV1) interacts with instability motifs in the IFNL3 3'UTR. Since ZAP is expressed as a long and a short isoform, it raises the possibility that ZAP isoforms have distinct cellular functions. The long isoform of ZAP, ZAP-L, has been characterized previously as an antiviral restriction factor. ZAP-L protein is expressed at basal levels, while ZAP-S is induced upon IFN stimulation through alternative splicing. ZC3HAV1-/- hepatocytes show elevated expression of IFNs and ISGs upon sensing of viral nucleic acids and flaviviral infection. At the same time, ZC3HAV1-/- hepatocytes present increased flaviviral replication despite higher IFN levels. Subcellular fractionation and confocal laser scanning microscopy reveals distinct localization of ZAP-S and ZAP-L within the cell. While ZAP-S is diffusely cytoplasmic, ZAP-L forms perinuclear foci and co-localizes with early and late endosomes, which is mediated by its C-terminal prenylation motif. Overall, our data suggest that the two ZAP isoforms have differential specificity to host and viral RNAs based on their intracellular localization. Through this, ZAP-L restricts viral replication early during infection, while ZAP-S curbs excessive IFN mediated inflammatory responses once the infection is controlled.