Insect immunity is innate and highly efficient to defend against various pathogens. However, uncontrolled excessive immune responses would be highly detrimental and energy‐consuming processes. An insect cytokine, plasmatocyte‐spreading peptide (SePSP), induces hemocyte‐spreading behavior as well as activates phenoloxidase (PO) in the beet armyworm, Spodoptera exigua. A hemocyte transcriptome of S. exigua contains a partial sequence of a putative PSP‐binding protein (SePSP‐BP1). SePSP‐BP1 was expressed in most larval stages except in the last instar. However, a bacterial challenge induced SePSP‐BP1 expression in the last instar especially in hemocytes and fat body. Injecting a double‐stranded RNA specific to SePSP‐BP1 (dsPSP‐BP1) suppressed the induction of SePSP‐BP1 expression in response to bacterial challenge. The larvae treated with dsPSP‐BP1 suffered high mortality to infection of nonpathogenic bacteria due to uncontrolled high PO activity. SePSP significantly induced PO activity. The eicosanoid synthesis inhibitor, dexamethasone (DEX), inhibited SePSP‐mediated PO activation. However, treatment with prostaglandin E2 (PGE2) induced a transient increase of PO activity under DEX treatment. Treatment of dsPSP decreased the duration of PO activation induced by PGE2, while treatment of dsPSP‐BP1 increased the induced period. These results suggest that prostaglandin mediates PSP signals in both upregulation of PO activity and its subsequent downregulation via SePSP‐BP1.