TNFa-mediated signaling pathways play a pivotal role in the pathogenesis of inflammatory diseases such as rheumatoid arthritis (RA) and inflammatory bowel disease (IBD) by promoting phagocyte inflammatory functions, notably cytokine release and reactive oxygen species (ROS) production by NOX2. In contrast, interleukin-10 (IL-10), a powerful anti-inflammatory cytokine, potently shuts down phagocyte activation, making IL-10 an attractive therapeutic candidate. However, IL-10 therapy has shown limited efficacy in patients with inflammatory diseases. Here, we report that TNFα blocks IL-10 anti-inflammatory pathways in human monocytes, thereby prolonging inflammation. TNFa decreased IL-10-induced phosphorylation of STAT3 and consequently IL-10-induced expression of the major anti-inflammatory factor, SOCS3. Decreased STAT3 phosphorylation was due to a SHP1/2 phosphatase, as NSC-87877, a SHP1/2 inhibitor, restored STAT3 phosphorylation and prevented the TNF-induced inhibition of IL-10 signaling. TNFa activated only SHP1 in human monocytes and this activation was NOX2-dependent, as diphenyleneiodonium, a NOX2 inhibitor, suppressed SHP1 activation and STAT3 dephosphorylation triggered by TNFa. ROS-induced activation of SHP1 was mediated by the redox-sensitive kinase, Lyn, as its inhibition impeded TNFa -induced SHP1 activation and STAT3 dephosphorylation. Furthermore, H2O2 recapitulated TNFa-inhibitory activity on IL-10 signaling.  Finally, NSC-87877 dampened collagen antibody-induced arthritis (CAIA) in mice. These results reveal that TNFa disrupts IL-10 signaling by inducing STAT3 dephosphorylation through a NOX2-ROS-Lyn-SHP1 axis in human monocytes and that inhibition of SHP1/2 in vivo protects against CAIA.  These new findings might explain the poor efficacy of IL-10 therapy in patients with inflammatory diseases and suggest that anti- TNFa agents and SHP1/2 inhibitors could improve the therapeutic use of IL-10.