Protein-tyrosine phosphatase 1B (PTP1B) is a major negative regulator of insulin and leptin sensitivity. PTP1B overexpression in adipose tissue and skeletal muscle of humans and rodents may contribute to insulin resistance and obesity. The mechanisms mediating PTP1B overexpression in obese and diabetic states have been unclear. We find that adipose tissue inflammation and the pro-inflammatory cytokine tumor necrosis factor alpha (TNFalpha) regulate PTP1B expression in vivo. High fat feeding of mice increased PTP1B expression 1.5- to 7-fold in adipose tissue, liver, skeletal muscle, and arcuate nucleus of hypothalamus. PTP1B overexpression in high fat-fed mice coincided with increased adipose tissue expression of the macrophage marker CD68 and TNFalpha, which is implicated in causing obesity-induced insulin resistance. TNFalpha increased PTP1B mRNA and protein levels by 2- to 5-fold in a dose- and time-dependent manner in adipocyte and hepatocyte cell lines. TNFalpha administration in mice increased PTP1B mRNA 1.4- to 4-fold in adipose tissue, liver, skeletal muscle, and hypothalamic arcuate nucleus and PTP1B protein 2-fold in liver. Actinomycin D treatment blocked, and high dose salicylate treatment inhibited by 80%, TNFalpha-induced PTP1B expression in adipocyte cell lines, suggesting TNFalpha may induce PTP1B transcription via nuclear factor kappaB (NFkappaB) activation. Chromatin immunoprecipitation from adipocyte cell lines and liver of mice demonstrated TNFalpha-induced recruitment of NFkappaB subunit p65 to the PTP1B promoter in vitro and in vivo. In mice with diet-induced obesity, TNFalpha deficiency also partly blocked PTP1B overexpression in adipose tissue. Our data suggest that PTP1B overexpression in multiple tissues in obesity is regulated by inflammation and that PTP1B may be a target of anti-inflammatory therapies.