Macrophage polarization plays a critical role in tissue homeostasis, disease pathogenesis, and inflammation and its resolution. IL-4–induced macrophage polarization involves induction of STAT6 and Krüppel-like factor 4 (KLF4), which induce each other and promote M2 polarization. However, how these transcription factors implement M2 polarization is not understood. We report that in murine macrophages MCP-1–induced protein (MCPIP), induced by KLF4, inhibits M1 polarization by inhibiting NF-κB activation and implements M2 polarization using both its deubiquitinase and RNase activities that cause sequential induction of reactive oxygen species (ROS), endoplasmic reticulum (ER) stress, and autophagy required for M2 polarization. MCPIP also induces C/EBPβ and PPARγ, which promote M2 polarization. Macrophages from mice with myeloid-targeted overexpression of MCPIP show elevated expression of M2 markers and reduced response to LPS, whereas macrophages from mice with myeloid-specific deletion of MCPIP manifest elevated M1 polarization with enhanced phagocytic activity. Thus, both in vivo and in vitro experiments demonstrate that the transcription factors STAT6 and KLF4 implement IL-4–induced M2 polarization via the dual catalytic activities of MCPIP.