The mechanisms connecting obesity with type 2 diabetes, insulin resistance, nonalcoholic fatty liver disease, and cardiovascular diseases remain incompletely understood. The function of MAPK phosphatase-2 (MKP-2), a type 1 dual-specific phosphatase (DUSP) in whole-body metabolism, and how this contributes to the development of diet-induced obesity, type 2 diabetes (T2D), and insulin resistance is largely unknown. We investigated the physiological contribution of MKP-2 in whole-body metabolism and whether MKP-2 is altered in obesity and human fatty liver disease using MKP-2 knockout mice models and human liver tissue derived from fatty liver disease patients. We demonstrate that, for the first time, MKP-2 expression was upregulated in liver tissue in humans with obesity and fatty liver disease and in insulin-responsive tissues in mice with obesity. MKP-2-deficient mice have enhanced p38 MAPK, JNK, and ERK activities in insulin-responsive tissues compared with wild-type mice. MKP-2 deficiency in mice protects against diet-induced obesity and hepatic steatosis and was accompanied by improved glucose homeostasis and insulin sensitivity. Mkp-2^−/− mice are resistant to diet-induced obesity owing to reduced food intake and associated lower respiratory exchange ratio. This was associated with enhanced circulating insulin-like growth factor-1 (IGF-1) and stromal cell-derived factor 1 (SDF-1) levels in Mkp-2^−/− mice. PTEN, a negative regulator of Akt, was downregulated in livers of Mkp-2^−/− mice, resulting in enhanced Akt activity consistent with increased insulin sensitivity. These studies identify a novel role for MKP-2 in the regulation of systemic metabolism and pathophysiology of obesity-induced insulin resistance and fatty liver disease.