The immune system continually battles against pathogen-induced pressures, which often leads to the evolutionary expansion of immune gene families in a species-specific manner. For example, the pals gene family expanded to 39 members in the Caenorhabditis elegans genome, in comparison to a single mammalian pals ortholog. Our previous studies have revealed that two members of this family, pals-22 and pals-25, act as antagonistic paralogs to control the Intracellular Pathogen Response (IPR). The IPR is a protective transcriptional response, which is activated upon infection by two molecularly distinct natural intracellular pathogens of C. elegans-the Orsay virus and the fungus Nematocida parisii from the microsporidia phylum. In this study, we identify a previously uncharacterized member of the pals family, pals-17, as a newly described negative regulator of the IPR. pals-17 mutants show constitutive upregulation of IPR gene expression, increased immunity against intracellular pathogens, as well as impaired development and reproduction. We also find that two other previously uncharacterized pals genes, pals-20 and pals-16, are positive regulators of the IPR, acting downstream of pals-17. These positive regulators reverse the effects caused by the loss of pals-17 on IPR gene expression, immunity, and development. We show that the negative IPR regulator protein PALS-17 and the positive IPR regulator protein PALS-20 colocalize inside and at the apical side of intestinal epithelial cells, which are the sites of infection for IPR-inducing pathogens. In summary, our study demonstrates that several pals genes from the expanded pals gene family act as ON/OFF switch modules to regulate a balance between organismal development and immunity against natural intracellular pathogens in C. elegans.