IL-1 (interleukin-1) is a pro-inflammatory cytokine that has a variety of effects during the process of inflammation. Stimulating cells with IL-1 initiates a signalling cascade that includes the activation of NF-kappaB (nuclear factor kappaB), and subsequently induces a variety of inflammatory genes. Although the molecular mechanism for the IL-1-induced activation of NF-kappaB has been well documented, much less is known about the mechanism by which protein phosphatases down-regulate this pathway. Here we show that mouse PP2Ceta-2 (protein serine/threonine phosphatase 2Ceta-2), a novel member of the protein serine/threonine phosphatase 2C family, inhibits the IL-1-NF-kappaB signalling pathway. Ectopic expression of PP2Ceta-2 in human embryonic kidney HEK293IL-1RI cells inhibited the IL-1-induced activation of NF-kappaB. TAK1 (transforming-growth-factor-beta-activated kinase 1) mediates the IL-1 signalling pathway to NF-kappaB, and we observed that the TAK1-induced activation of NF-kappaB was suppressed by PP2Ceta-2 expression. Expression of IKKbeta [IkappaB (inhibitory kappaB) kinase beta], which lies downstream of TAK1, activates NF-kappaB, and this activation was also readily reversed by PP2Ceta-2 co-expression. Additionally, PP2Ceta-2 knockdown with small interfering RNA further stimulated the IL-1-enhanced phosphorylation of IKKbeta and destabilization of IkappaBalpha in HeLa cells. PP2Ceta-2 knockdown also increased the IL-1-induced expression of IL-6 mRNA. Furthermore, IKKbeta was readily dephosphorylated by PP2Ceta-2 in vitro. These results suggest that PP2Ceta-2 inhibits the IL-1-NF-kappaB signalling pathway by selectively dephosphorylating IKKbeta.