Loss-of-function mutation in the profilaggrin gene is a major risk factor for atopic dermatitis (AD). Previously, we showed that a neutral cysteine protease, bleomycin hydrolase (BH), has a role in generating natural moisturizing factors, and calpain I is an upstream protease in the filaggrin degradation pathway. Here, we investigated the transcriptional regulatory mechanisms of BH and the relevance of BH to AD. First, we cloned the 5'-flanking region of BH. Deletion analyses identified a critical region for BH promoter activity within -216 bp upstream. Electrophoretic mobility shift assay revealed that MZF-1, Sp-1, and interferon regulatory factor-1/2 could bind to this region in vitro. Moreover, site-directed mutagenesis of the MZF-1 and Sp-1 motifs markedly reduced BH promoter activity. These data indicate that BH expression is up-regulated via MZF-1 and Sp-1. Interestingly, a Th1 cytokine, IFN-γ, significantly reduced the expression of BH. Analyses with site-directed mutagenesis and small interference RNA supported the suppressing effect of IFN-γ on BH expression. On the other hand, a Th2 cytokine, IL-4, did not show any direct effect on BH expression. However, it down-regulated MZF-1 and Sp-1 in cultured keratinocytes, indicating that IL-4 could work as a suppressor in BH regulation. Lastly, we examined expression of BH in skins of patients with AD. BH activity and expression were markedly decreased in AD lesional skin, suggesting a defect of the filaggrin degradation pathway in AD. Our results suggest that BH transcription would be modulated during both differentiation and inflammation.