The dual specific phosphatase, MAP kinase phosphatase-2 (MKP-2) has recently been demonstrated to negatively regulate macrophage arginase-1 expression, while at the same time to positively regulate iNOS expression. Consequently, MKP-2 is likely to play a significant role in the host interplay with intracellular pathogens. Here we demonstrate that MKP-2−/− mice on the C57BL/6 background have enhanced susceptibility compared with wild-type counterparts following infection with type-2 strains of Toxoplasma gondii as measured by increased parasite multiplication during acute infection, increased mortality from day 12 post-infection onwards and increased parasite burdens in the brain, day 30 post-infection. MKP-2−/− mice did not, however, demonstrate defective type-1 responses compared with MKP-2+/+ mice following infection although they did display significantly reduced serum nitrite levels and enhanced tissue arginase-1 expression. Early resistance to T. gondii in MKP-2+/+, but not MKP-2−/−, mice was nitric oxide (NO) dependent as infected MKP-2+/+, but not MKP-2−/− mice succumbed within 10 days post-infection with increased parasite burdens following treatment with the iNOS inhibitor L-NAME. Conversely, treatment of infected MKP-2−/− but not MKP-2+/+ mice with nor-NOHA increased parasite burdens indicating a protective role for arginase-1 in MKP-2−/− mice. In vitro studies using tachyzoite-infected bone marrow derived macrophages and selective inhibition of arginase-1 and iNOS activities confirmed that both iNOS and arginase-1 contributed to inhibiting parasite replication. However, the effects of arginase-1 were transient and ultimately the role of iNOS was paramount in facilitating long-term inhibition of parasite multiplication within macrophages.