PGE2 has important inhibitory effects on the macrophage host defense functions of phagocytosis and killing, yet the molecular mechanisms involved remain to be fully elucidated. PGE2 causes an elevation of cAMP in alveolar macrophages (AMs), which in turn activates the cAMP effector targets, protein kinase A and the exchange protein activated by cAMP (Epac)-1. We now report that FcgammaR-induced PI3K/Akt and ERK-1/2 activation are inhibited by PGE2 in AMs. By specifically inhibiting the phosphatase and tensin homolog deleted on chromosome 10 (PTEN) in AMs, we attenuated the inhibitory effects of both PGE2 and a specific Epac-1 agonist (8-pCPT-2'-O-Me-cAMP) on FcgammaR-mediated phagocytosis and Akt/ERK-1/2 activation; PTEN inhibition also decreased PGE2-induced suppression of bacterial killing by AMs. Moreover, PGE2 and the Epac-1 agonist induced an increase in PTEN lipid phosphatase activity, and this was associated with decreased tyrosine phosphorylation on PTEN-a mechanism known to regulate PTEN activity. Using a pharmacological approach, we demonstrated a role for Src homology 2-containing protein tyrosine phosphatase-1 in the PGE2-induced tyrosine dephosphorylation of PTEN. Collectively, these data reveal that PGE2, via Epac-1 activation, enhances SHP-1 activity, resulting in increased PTEN activity. We suggest that this mechanism contributes to the ability of PGE2 to inhibit PI3K-dependent innate immune signaling in primary macrophages.