Immune responses are critically regulated by the functions of CD4 helper T cells. Based on their secreted cytokines, helper T cells are further categorized into different subsets like Treg or Th17 cells, which suppress or promote inflammatory responses, respectively. Signals from IL-2 activate the transcription factor STAT5 to promote Treg but suppress Th17 cell differentiation. Our previous results found that the deficiency of a dual-specificity phosphatase, DUSP4, induced STAT5 hyper-activation, enhanced IL-2 signaling, and increased T cell proliferation. In this report, we examined the effects of DUSP4 deficiency on helper T cell differentiation and STAT5 regulation. Our in vivo data showed that DUSP4 mice were more resistant to the induction of autoimmune encephalitis, while in vitro differentiations revealed enhanced iTreg and reduced Th17 polarization in DUSP4-deficient T cells. To study the cause of this altered helper T cell polarization, we performed luciferase reporter assays and confirmed that, as predicted by our previous report, DUSP4 over-expression suppressed the transcription factor activity of STAT5. Surprisingly, we also found that DUSP4-deficient T but not B cells exhibited elevated STAT5 protein levels, and over-expressed DUSP4 destabilized STAT5 in vitro; moreover, this destabilization required the phosphatase activity of DUSP4, and was insensitive to MG132 treatment. Finally, domain-mapping results showed that both the substrate-interacting and the phosphatase domains of DUSP4 were required for its optimal interaction with STAT5, while the coiled-coil domain of STAT5 appeared to hinder this interaction. Our data thus provide the first genetic evidence that DUSP4 is important for helper T cell development. In addition, they also help uncover the novel, DUSP4-mediated regulation of STAT5 protein stability.