The dual specificity protein phosphatases (Dusps) control dephosphorylation of mitogen-activated protein kinases (MAPKs) as well as other substrates. Here, we report that Dusp26, which is highly expressed in neuroblastoma cells and primary neurons is targeted to the mitochondrial outer membrane via its NH2-terminal mitochondrial targeting sequence. Loss of Dusp26 has a significant impact on mitochondrial function that is associated with increased levels of reactive oxygen species (ROS), reduction in ATP generation, reduction in mitochondria motility and release of mitochondrial HtrA2 protease into the cytoplasm. The mitochondrial dysregulation in dusp26-deficient neuroblastoma cells leads to the inhibition of cell proliferation and cell death. In vivo, Dusp26 is highly expressed in neurons in different brain regions, including cortex and midbrain (MB). Ablation of Dusp26 in mouse model leads to dopaminergic (DA) neuronal cell loss in the substantia nigra par compacta (SNpc), inflammatory response in MB and striatum, and phenotypes that are normally associated with Neurodegenerative diseases. Consistent with the data from our mouse model, Dusp26 expressing cells are significantly reduced in the SNpc of Parkinson’s Disease patients. The underlying mechanism of DA neuronal death is that loss of Dusp26 in neurons increases mitochondrial ROS and concurrent activation of MAPK/p38 signaling pathway and inflammatory response. Our results suggest that regulation of mitochondrial-associated protein phosphorylation is essential for the maintenance of mitochondrial homeostasis and dysregulation of this process may contribute to the initiation and development of neurodegenerative diseases.