The integration of metabolic signals required for the regulation of hepatic lipid homeostasis is complex. Previously, we showed that mice lacking expression of the mitogen-activated protein kinase (MAPK) phosphatase-1 (MKP-1) have increased fatty acid oxidation and are protected from the development of hepatic steatosis. Here, we show that leptin receptor-deficient (db/db) mice lacking MKP-1 are also resistant to the development of hepatic steatosis. Microarray analyses of livers from db/db mice lacking MKP-1 showed suppression of peroxisome proliferator-activated receptor γ (PPARγ) target genes. We identified the fat-specific protein 27 (Fsp27), which promotes PPARγ-mediated hepatic steatosis, as repressed in livers of both db/db and high fat diet-fed mice lacking MKP-1. Hepatocytes from MKP-1-deficient mice exhibited reduced PPARγ-induced lipid droplet formation. Mechanistically, loss of MKP-1 inhibited PPARγ function by increasing MAPK-dependent phosphorylation on PPARγ at its inhibitory residue of serine 112. These results demonstrate that in addition to inhibiting hepatic fatty acid oxidation, MKP-1 promotes hepatic lipogenic gene expression through PPARγ. Hence, MKP-1 plays an important role in MAPK-mediated control of hepatic lipid homeostasis.