PTPN22, a protein tyrosine phosphatase expressed mainly in hematopoietic cells, has been linked to many autoimmune diseases. A C-to-T single nucleotide polymorphism (SNP) at position 1858 of human PTPN22 cDNA decreases the risk of Crohn’s disease. However, the function of PTPN22 and the mechanism by which this SNP reduces the risk of Crohn’s disease are poorly understood. We find that PTPN22 is expressed in macrophages. It suppresses M1 macrophage polarization and reciprocally promotes the expression of M2-associated genes. PTPN22-deficient mice develop severe colitis induced by dextran sulfate sodium, and their intestinal macrophages express higher levels of M1 genes but lower levels of M2-associated genes. Furthermore, the protective T allele of the C1858T SNP is associated with attenuated expression of inflammatory cytokines and a higher level of PTPN22 in human M1 macrophages. This T allele–associated aberrant expression of PTPN22 is partly attributed to an autoinhibition mechanism, in which PTPN22 suppresses its own expression in M1 but not M2 macrophages. Our data not only demonstrate a critical role of PTPN22 in regulating macrophage polarization but also provide a molecular explanation for the protective effect of the C1858T SNP in Crohn’s disease.