The critical events in clearance or persistence of hepatitis C virus (HCV) infection are unknown but likely to be determined early in acute infection. Type 1 and type 2 cytokine production was assessed by HCV peptide ELISpot and multiplex in vitro cytokine production assays in longitudinally collected samples from 20 untreated participants enrolled in the Australian Trial in Acute Hepatitis C (ATAHC); a prospective cohort of acute HCV infection (77% injecting drug users, IDU). Significantly higher interleukin-10 (IL-10) production (P = 0.048), in the relative absence of interferon-gamma (IFN-γ) and IL-2 production, was present early in HCV infection in those who progressed to chronic infection. In contrast, viral clearance was associated with a greater magnitude and broader specificity of IFN-γ (magnitude P < 0.001, breadth P = 0.004) and IL-2 responses, in the relative absence of IL-10. Early IL-10 production was correlated with higher HCV RNA level at baseline (P = 0.046) and week 12 (P = 0.018), while IFN-γ and IL-2 production was inversely correlated with HCV RNA level at baseline (IFN-γ P = 0.020, IL-2 P = 0.050) and week 48 (IFN-γ P = 0.045, IL-2 P = 0.026). Intracellular staining (ICS) indicated the HCV-specific IFN-γ response was primarily from CD8(+) T cells and NK cells, whereas IL-10 production was predominantly from monocytes, with a subset of IL-10 producing CD8(+) T cells present only in those who progressed to chronic infection. IL-10, an immunoregulatory cytokine, appears to play a key role in progression to chronic HCV infection.