Acts as a signaling pathway regulator involved in innate immune system response. In response to interferon IFN-alpha, associates in a complex with signaling pathway regulator NMI to regulate immune response; the complex formation prevents proteasome-mediated degradation of IFI35 and correlates with IFI35 dephosphorylation. In complex with NMI, inhibits virus-triggered type I interferon/IFN-beta production. In complex with NMI, negatively regulates nuclear factor NF-kappa-B signaling by inhibiting the nuclear translocation, activation and transcription of the NF-kappa-B subunit p65/RELA, resulting in the inhibition of endothelial cell proliferation, migration and re-endothelialization of injured arteries. Beside its role as an intracellular signaling pathway regulator, also functions extracellularly as damage-associated molecular patterns (DAMPs) to promote inflammation when actively released by macrophage to the extracellular space during cell injury and pathogen invasion. Macrophage-secreted IFI35 activates NF-kappa-B signaling in adjacent macrophages through Toll-like receptor 4/TLR4 activation, thereby inducing NF-kappa-B translocation from the cytoplasm into the nucleus which promotes the release of pro-inflammatory cytokines.