Anemia is a complication of interferon-containing hepatitis C treatments. We characterized effects of interferon-based therapy on hepcidin and erythropoietin (EPO) production, iron metabolism, hemolysis, and hematopoiesis. Standard hemopoiesis [reticulocyte hemoglobin (Hb), reticulocyte production index (RPI), free Hb, and haptoglobin], iron biochemistry, hepcidin, and EPO levels were measured in 10 subjects over 12 weeks. There was a rapid decline in Hb during treatment, from a mean pretreatment (t = 0 weeks) Hb of 158.6 to 125.2 g/L at week 4 (P = 0.003) and 122.8 g/L at week 12 (P = 0.005). Paradoxically, the RPI (a measure of bone marrow responsiveness to EPO) decreased on initiation of hepatitis C virus treatment from 0.78% to 0.53% (P = 0.04). Despite worsening anemia, there was no significant increase in EPO levels. Hepcidin levels increased to >20nM in 3 subjects from 5.8 to 27.5nM (P = 0.009) compared with 9.6 to 12.3nM (P = 0.5) for the remainder of subjects. Hepcidin levels peaked at week 1 before returning to baseline levels at week 4. Subjects who responded with a rise in serum hepcidin levels to >20nM had a significantly greater drop in Hb (27.2 g/L, P = 0.008) and reticulocyte Hb (-1.4 g/L, P = 0.013) compared with the subjects who did not exhibit any change in hepcidin production. In conclusion, 30% of subjects treated with interferon exhibited significant transient increase in serum hepcidin levels, which was associated with more extreme anemia and decreased iron availability as evidenced by decreased reticulocyte Hb. In addition, there was a failure to upregulate EPO production in response to anemia and hemolysis (https://clinicaltrials.gov trial NCT01726400).