Externally regulated phosphatase (ERP or MKP-1) is a dual specificity phosphatase that has been implicated in the dephosphorylation of mitogen activated protein kinases (MAP kinases). MAP kinase is activated in response to external signals and in turn phosphorylates proteins essential to the regulation of cell growth. To study the role of ERP/MKP-1 protein in mammalian development and its function in signal transduction we have generated mice, embryonic stem (ES), cells and mouse embryo fibroblasts (MEFs) that are deficient in the ERP/MKP-1 protein. ERP/MKP-1-deficient mice are born at normal frequency, are fertile and present no phenotypic or histologic abnormalities. MAP kinase activity and the induction of c-fos mRNA is unaltered in MEFs lacking the ERP/MKP-1 protein, indicating no alteration of the MAP kinase pathway. In addition, ERP/MKP-1 deficient MEFs grow and enter DNA synthesis at the same rate as control cells. Our results demonstrate that the activity of ERP/MKP-1 is not essential for embryo development and indicate that the lack of ERP/MKP-1 activity can be compensated by other phosphatases in vivo.