Nonalcoholic fatty liver disease is currently the most common liver disease and is a leading cause of liver-related morbidity and mortality. However, its pathogenesis remains largely unclear. We previously showed that mice deficient in mitogen-activated protein kinase (MAPK) phosphatase 5 (MKP5) spontaneously developed insulin resistance and glucose intolerance, which are associated with visceral obesity and adipose tissue inflammation. In this study, we discovered that mice deficient in MKP5 developed more severe hepatic steatosis and steatohepatitis with age or with feeding on a high-fat diet (HFD) compared to wild-type (WT) mice, and this was associated with increased expression of proinflammatory cytokines and collagen genes. Increased p38 activation in MKP5 knockout (KO) liver compared to that in WT liver was detected, which contributed to increased expression of lipid droplet-associated protein cell death-inducing DFF45-like effector A (CIDEA) and CIDEC/fat-specific protein 27 but not CIDEB through activating transcription factor 2 (ATF2). In addition, MKP5 KO liver had higher peroxisome proliferator-activated receptor gamma (PPARγ) expression compared with WT liver. On the other hand, overexpression of MKP5 or inhibition of p38 activation in hepatocytes resulted in reduced expression of PPARγ. Inhibition of p38 resulted in alleviation of hepatic steatosis in KO liver in response to HFD feeding, and this was associated with reduced expression of CIDEA, CIDEC, and proinflammatory cytokines. Conclusion: MKP5 prevents the development of nonalcoholic steatohepatitis by suppressing p38-ATF2 and p38-PPARγ to reduce hepatic lipid accumulation, inflammation, and fibrosis.