We study the dynamics of an atomic Bose-Einstein condensate in an optical lattice in which the electronic ground state of each atom is weakly coupled to a highly excited Rydberg state by a far off-resonant laser. This dressing induces a switchable effective soft-core interaction between ground-state atoms which, in the lattice, gives rise to on-site as well as long-range interaction terms. Upon switching on the dressing laser the coherence properties of the atomic superfluid undergo a nontrivial collapse and revival dynamics which can be observed in the interference pattern that is created after a release of the atoms from the optical lattice. This interference signal strongly depends on the strength and the duration of the dressing laser pulse and can be used to probe and characterize the effective interaction between Rydberg-dressed atoms.