The activity of mitogen-activated protein kinase (MAPK) is upregulated following reversible phosphorylation by upstream kinases and inhibited by the action of specific phosphatases. Drosophila MKP-3 (DMKP-3) is a phosphatase that is highly homologous to its mammalian homologue, containing two conserved domains, the N-terminal Drosophila ERK (DERK)/rolled binding domain and the C-terminal phosphatase domain. Here, I demonstrated that over-expression of DMKP-3 dramatically reduced the number of photoreceptor cells, and inhibited vein differentiation by specifically suppressing the activities of Drosophila Ras/DERK pathway. Over-expression of DMKP-3 strongly enhanced the loss-of-function phenotypes of MAPK signalings in hypomorphic Raf, Ras, and rolled flies, and suppressed the expression of rhomboid, a downstream target of DERK. In addition, DMKP-3 inhibited cell proliferation by blocking G1/S cell cycle progression. The N-terminal DERK/rolled binding domain of DMKP-3 was required to exert these in vivo activities, supporting the previous reports that the N-terminal domain specifically binds to ERK-MAPK, sequestrating the kinase away from the nucleus and downregulating its activities. Next, I further demonstrated the involvement of DMKP-3 in the differentiation of photoreceptor and vein cells using DMKP-3 loss-of-function mutants. The DMKP-3 loss-of-function mutants exhibited extra wing vein and photoreceptor cell phenotypes and an embryonic lethality, which are strikingly similar to the phenotypes of the gain-of-function mutant of rolled, $rl^{sem}$. As expected, these DMKP-3 loss-of-function mutants strongly interacted with the various mutants in ERK-MAPK signalings. Collectively, these results demonstrate that DMKP-3 regulates Drosophila development by antagonizing the ERK-MAPK-dependent signaling pathway.