MD-2, a glycoprotein that is essential for the innate response to lipopolysaccharide (LPS), binds to both LPS and the extracellular domain of Toll-like receptor 4 (TLR4). Following synthesis, MD-2 is either secreted directly into the medium as a soluble, active protein, or binds directly to TLR4 in the endoplasmic reticulum before migrating to the cell surface. Here we investigate the function of the secreted form of MD-2. We show that secreted MD-2 irreversibly loses activity over a 24-h period at physiological temperature. LPS, but not lipid A, prevents this loss in activity by forming a stable complex with MD-2, in a CD14-dependent process. Once formed, the stable MD-2.LPS complex activates TLR4 in the absence of CD14 or free LPS indicating that the activating ligand of TLR4 is the MD-2.LPS complex. Finally we show that the MD-2.LPS complex, but not LPS alone, induces epithelial cells, which express TLR4 but not MD-2, to secrete interleukin-6 and interleukin-8. We propose that the soluble MD-2.LPS complex plays a crucial role in the LPS response by activating epithelial and other TLR4(+)/MD-2(-) cells in the inflammatory microenvironment.