Interferon-alpha (IFNalpha) is a major treatment modality for several malignant and nonmalignant diseases, especially hepatitis C. Prospective studies have shown that up to 15% of patients with hepatitis C receiving IFNalpha develop clinical thyroid disease, and up to 40% were reported to develop thyroid antibodies. Some of these complications may result in discontinuation of interferon therapy. Thus, interferon induced thyroiditis (IIT) is a major clinical problem for patients receiving interferon therapy. IIT can be classified as autoimmune type and non-autoimmune type. Autoimmune IIT may manifest by the development of thyroid antibodies without clinical disease, or by clinical disease which includes both autoimmune hypothyroidism (Hashimoto's thyroiditis) and autoimmune thyrotoxicosis (Graves' disease). Non-autoimmune IIT can manifest as destructive thyroiditis or as hypothyroidism with negative thyroid antibodies. Early detection and therapy of these conditions is important in order to avoid complications of thyroid disease such as cardiac arrhythmias. While it is not clear which factors contribute to the susceptibility to IIT, recent evidence suggests that genetic factors, gender, and hepatitis C virus infection may play a role. In contrast, viral genotype and therapeutic regimen do not influence susceptibility to IIT. The etiology of IIT is unknown and may be secondary to immune modulation by IFNalpha and/or direct effects of interferon on the thyroid. In this review we discuss the clinical and pathophysiological aspects of IIT, and we are proposing a new, etiology-based classification of IIT, as well as an algorithm for diagnosis and treatment of IIT.