We have capitalized on the unique properties of the skin tumor promoter palytoxin, which does not activate protein kinase C, to investigate alternative mechanisms by which major signaling molecules can be modulated during carcinogenesis. We report here that palytoxin activates extracellular signal-regulated kinase (ERK) through a novel mechanism that involves inactivation of an ERK phosphatase in keratinocytes derived from initiated mouse skin (308 cells). Use of U0126 revealed that palytoxin requires the ERK kinase MEK to stimulate ERK activity, although palytoxin did not activate MEK. We found that 308 keratinocytes highly express mitogen-activated protein kinase phosphatase-3 (MKP-3), which selectively inactivates ERK. Palytoxin induced the loss of MKP-3 in a manner that corresponded to increased ERK phosphorylation. Complementary studies showed that sustained expression of exogenous MKP-3 inhibited palytoxin-stimulated ERK activation. As is characteristic of initiated keratinocytes, 308 cells express activated H-Ras. To investigate whether expression of oncogenic Ras is key to palytoxin-stimulated ERK activation, we determined how palytoxin affected ERK and MKP-3 in MCF10A human breast epithelial cells and in H-ras MCF10A cells, which stably express activated H-Ras. Palytoxin did not affect ERK activity in MCF10A cells, which had no detectable MKP-3. Like 308 cells, H-ras MCF10A cells highly express MKP-3. Strikingly, palytoxin stimulated ERK activity and induced a corresponding loss of MKP-3 in H-ras MCF10A cells. These studies indicate that in initiated cells palytoxin unleashes ERK activity by down-regulating MKP-3, an ERK inhibitor, and further suggest that MKP-3 may be a vulnerable target in cells that express oncogenic Ras.