Aberrant matrix deposition is a hallmark of pulmonary fibrosis and is characterized by an imbalance between matrix deposition and degradation. We have previously shown that mice harboring a conditional deletion of the GTP-binding protein, Rac1, in macrophages are protected from asbestos-induced pulmonary fibrosis. To investigate the contribution of aberrant matrix degradation, we addressed the role of Rac1 in regulating expression of macrophage-specific MMP-9 (matrix metalloproteinase-9).Wefound that MMP-9 gene transcription was significantly greater in Rac1 null macrophages. Deletion and mutational analysis of the MMP-9 promoter revealed that both SP-1 and AP-1 are essential for MMP-9 transcription. Overexpression of constitutive active Rac1 (V12) revealed that H2O2 was derived from the mitochondria. Rac1-induced H2O2 generation down-regulated MMP-9 gene transcription, whereas catalase overexpression in WT cells enhanced MMP-9 expression. SP-1 interacted directly with both c-Jun and c-Fos, and H2O2 decreased this binding, suggesting that SP-1 and AP-1 function cooperatively to regulate MMP-9 transcription. Rac1-mediated H2O2 inhibited the ERK MAPK, which was essential for activation of SP-1 and AP-1. ERK activation and MMP-9 expression were recovered by overexpressing catalase or transfecting siRNA for the mitochondrial iron-sulfur protein, Rieske. These observations were recapitulated in vivo. MMP-9 mRNA was higher in alveolar macrophages isolated from Rac1 null mice and wild type mice given catalase. Rac1 regulates MMP-9 transcription via mitochondrial H2O2 generation, providing a potential mechanism by which Rac1 null mice fail to develop pulmonary fibrosis.