The genus Echinacea is a popular herbal immunomodulator. Recent reports indicate that Echinacea products inhibit nitric oxide (NO) production in activated macrophages. In the present study we determined the inhibitory effects of alcohol extracts and individual fractions of alcohol extracts of Echinacea on NO production, and explored the mechanism underlying the pharmacological anti-inflammatory activity. The alcohol extracts of three medicinal Echinacea species, E. angustifolia, E. pallida and E. purpurea, significantly inhibited NO production by lipopolysaccharide (LPS)-activated the RAW 264.7 macrophage cell line, among them E. pallida was the most active. The Echinacea-mediated decrease in NO production was unlikely due to a direct scavenging of NO because the extracts did not directly inhibit NO released from an NO donor, sodium nitroprusside. An immunoblotting assay demonstrated that the extract of E. pallida inhibited inducible nitric oxide synthase (iNOS) protein expression in LPS-treated macrophages. The enzymes iNOS and arginase metabolize a common substrate, L-arginine, but produce distinct biological effects. While iNOS is involved in inflammatory response and host defense, arginase participates actively in anti-inflammatory activation. Arginase activity of RAW 264.7 cells stimulated with 8- bromo-cAMP was significantly increased by alcohol extracts of all three Echinacea species. The polar fraction containing caffeic acid derivatives enhanced arginase activity, while the lipophilic fraction containing alkamides exhibited a potential of inhibiting NO production and iNOS expression. These results suggest that the anti-inflammatory activity of Echinacea might be due to multiple active metabolites, which work together to switch macrophage activation from classical activation towards alternative activation.