Monocytic cells are integral in the pathogenesis of inflammatory disorders. We have shown previously that asbestos-induced p38 MAP kinase activation and TNF- expression are mediated by H₂O₂ in blood monocytes. Due to the high expression and activity of catalase and glutathione peroxidase, normal alveolar macrophages do not respond in a similar manner as blood monocytes. Since kinase activity is tightly regulated by phosphatases, we hypothesized that the dual specificity phosphatase MKP-1 regulates p38 activity and TNF- production in alveolar macrophages due to insufficient H₂O₂ generation in response to asbestos. We found that MKP-1 was highly expressed in alveolar macrophages, while blood monocytes had minimal expression. Inhibition of expression and activity of MKP-1 or over expression of a catalytic mutant MKP-1 recovered p38 activity in alveolar macrophages. We questioned if MKP-1 oxidation played a role dictating the contrasting responses of these cells to asbestos exposure and found that over expressed wild-type MKP-1 in monocytes was oxidized, while the mutant MKP-1 remained in the reduced form. Monocytes over expressing either catalase or wild-type MKP-1 had decreased p38 activation and TNF- production, respectively. In addition, TNF- gene expression was regained in alveolar macrophages over expressing the catalytic mutant MKP-1. These data suggest that MKP-1, through increased expression and lack of oxidation, modulates the inflammatory response in alveolar macrophages exposed to asbestos.