The mitogen-activated protein kinase (MAPK) phosphatase 1 (MKP-1) is an immediate-early gene comprised of a dual-specificity phosphatase domain and a noncatalytic NH 2 terminus. Here, we show that the NH 2 terminus of MKP-1, containing the cdc25 homology domains A (CH2A) and B (CH2B), mediates MKP-1 nuclear targeting and modulates MAPK-mediated gene expression. An LXXLL motif which is known to mediate protein-protein interactions with nuclear-targeted hormone receptors was identified proximal to the CH2A domain of MKP-1. The NH 2 terminus alone of MKP-1 containing this LXXLL motif was sufficient to direct nuclear targeting, and mutating this motif to LXXAA resulted in the exclusion of MKP-1 from the nucleus. We found that the LXXLL motif proximal to the CH2A domain was present in other nuclear-localized MKPs but was absent in MKPs that localized to the cytoplasm. These data suggest that this LXXLL motif confers nuclear targeting properties to the MKPs. The NH 2 terminus of MKP-1 was also found to inhibit the activation of the serum response element (SRE) by preventing MAPK-mediated phosphorylation of the regulatory serine 383 residue on Elk-1. Moreover, we show that MKP-1 plays a major role in the attenuation of serum-induced SRE activity, since MKP-1 null fibroblasts exhibited enhanced SRE activity in response to serum compared with wild-type fibroblasts. The NH 2 terminus of MKP-1, when reconstituted into MKP-1 null fibroblasts to levels similar to endogenous MKP-1 following serum stimulation, reduced serum-mediated SRE activity. Collectively, these data reveal novel roles for the NH 2 terminus of MKP-1 in nuclear targeting and transcriptional regulation.