Glucocorticoids inhibit the proinflammatory activities of transcription factors such as AP‐1 and NF‐κB as well as that of diverse cellular signaling molecules. One of these signaling molecules is the extracellular signal‐regulated kinase (Erk‐1/2) that controls the release of allergic mediators and the induction of proinflammatory cytokine gene expression in mast cells. The mechanism of inhibition of Erk‐1/2 activity by glucocorticoids is unknown. Here we report a novel dual action of glucocorticoids for this inhibition. Glucocorticoids increase the expression of the MAP kinase phosphatase‐1 (MKP‐1) gene at the promoter level, and attenuate proteasomal degradation of MKP‐1, which we report to be triggered by activation of mast cells. Both induction of MKP‐1 expression and inhibition of its degradation are necessary for glucocorticoid‐mediated inhibition of Erk‐1/2 activation. In NIH‐3T3 fibroblasts, although glucocorticoids up‐regulate the MKP‐1 level, they do not attenuate the proteasomal degradation of this protein and consequently they are unable to inhibit Erk‐1/2 activity. These results identify MKP‐1 as essential for glucocorticoid‐mediated control of Erk‐1/2 activation and unravel a novel regulatory mechanism for this anti‐inflammatory drug.