The distinct feature of hepatitis C virus (HCV) infection is a high incidence of chronicity. The reason for chronic HCV infection has been actively investigated, and impairment of innate and adaptive immune responses against HCV is proposed as a plausible cause. Whereas functional impairment of HCV-specific T cells is well characterized, the role and functional status of natural killer (NK) cells in each phase of HCV infection are still elusive. We therefore investigated whether direct interaction between NK cells and HCV-infected cells modulates NK cell function. HCV-permissive human hepatoma cell lines were infected with cell culture-generated HCV virions and cocultured with primary human NK cells. Cell-to-cell contact between NK cells and HCV-infected cells reduced NK cells' capacity to degranulate and lyse target cells, especially in the CD56(dim) NK cell subset, which is characterized by low-density surface expression of CD56. The decrease in degranulation capacity was correlated with downregulated expression of NK cell-activating receptors, such as NKG2D and NKp30, on NK cells. The ability of NK cells to produce and secrete gamma interferon (IFN-γ) also diminished after exposure to HCV-infected cells. The decline of IFN-γ production was consistent with the reduction of NK cell degranulation. In conclusion, cell-to-cell contact with HCV-infected cells negatively modulated functional capacity of NK cells, and the inhibition of NK cell function was associated with downregulation of NK-activating receptors on NK cell surfaces. These observations suggest that direct cell-to-cell interaction between NK cells and HCV-infected hepatocytes may impair NK cell function in vivo and thereby contribute to the establishment of chronic infection.