11beta-Hydroxysteroid dehydrogenase type 1 (11betaHSD1) performs end-organ metabolism of glucocorticoids (GCs) by catalyzing the conversion of C(11)-keto-GCs to C(11)-hydroxy-GCs, thereby generating activating ligands for the GC receptor. In this study, we report that 11betaHSD1(-/-) mice are more susceptible to endotoxemia, evidenced by increased weight loss and serum TNF-alpha, IL-6, and IL-12p40 levels following LPS challenge in vivo. Peritoneal and splenic macrophage (splnMphi) from these genetically altered mice overproduce inflammatory cytokines following LPS stimulation in vitro. Inflammatory cytokine overexpression by 11betaHSD1(-/-) splnMphi results from an increased activation of NF-kappaB- and MAPK-signaling cascades and an attenuated PI3K-dependent Akt activation. The expression of SHIP1 is augmented in 11betaHSD1(-/-) Mphi and contributes to inflammatory cytokine production because overexpression of SHIP1 in primary bone marrow Mphi (BMMphi) leads to a similar type of hyperresponsiveness to subsequent LPS stimulation. 11betaHSD1(+/+) and 11betaHSD1(-/-) BMMphi responded to LPS similarly. However, 11betaHSD1(-/-) BMMphi derived in the presence of elevated GC levels up-regulated SHIP1 expression and increased their capacity to produce inflammatory cytokines following their activation with LPS. These observations suggest the hyperresponsiveness of 11betaHSD1(-/-) splnMphi results from myeloid cell differentiation in the presence of moderately elevated GC levels found within 11betaHSD1(-/-) mice. GC-conditioning of BMMphi enhanced SHIP1 expression via up-regulation of bioactive TGF-beta. Consistently, TGF-beta protein expression was increased in unstimulated CD11b(-) cells residing in the BM and spleen of 11betaHSD1(-/-) mice. Our results suggest that modest elevations in plasma GC levels can modify the LPS responsiveness of Mphi by augmenting SHIP1 expression through a TGF-beta-dependent mechanism.