UBP43 is a protease that specifically removes a ubiquitin-like protein, ISG15, from its targets. Highest levels of UBP43 expression are detected in macrophages and in cell lines of monocytic lineage. Macrophages are important in host defense against bacterial and viral infections. The lipopolysaccharide (LPS) of the bacterial cell wall can mimic bacteria and activate monocytes/macrophages to provoke inflammatory responses. Here, we report that LPS strongly activates UBP43 expression in macrophages, which is paralleled by changes in UBP43 protein levels. Two interferon regulatory factor (IRF) binding sites in the UBP43 promoter are responsible for the induction of UBP43 expression by LPS, as well as for basal UBP43 promoter activity. We have identified two members of the IRF family (IRF-2 and IRF-3) that specifically bind to these sites. IRF-3 plays a primary role in the LPS-inducible activation of the UBP43 gene and IRF-2 confers a basal transcriptional activity to the UBP43 promoter. Furthermore, we demonstrate that LPS treatment increases the amount of ISG15-conjugates in macrophages. Coordinated induction of ISG15 and UBP43 suggests that ISG15 conjugation is a dynamic process and that a critical balance of ISG15-modification should be maintained during innate immune response.