The exact roles and abilities of the individual components of the lipopolysaccharide (LPS) receptor complex of proteins remain unclear. MD-2 is a molecule found in association with toll-like receptor 4. We produced recombinant human MD-2 to explore its LPS binding ability and role in the LPS receptor complex. MD-2 binds to highly purified rough LPS derived from Salmonella minnesota and Escherichia coli in five different assays; one assay yielded an apparent KD of 65 nm. MD-2 binding to LPS did not require LPS-binding proteins LBP and CD14; in fact LBP competed with MD-2 for LPS. MD-2 enhanced the biological activity of LPS in toll-like receptor 4-transfected Chinese hamster ovary cells but inhibited LPS activation of U373 astrocytoma cells and of monocytes in human whole blood. These data indicate that MD-2 is a genuine LPS-binding protein and strongly suggest that MD-2 could play a role in regulation of cellular activation by LPS depending on its local availability.