Myeloid differentiation factor-2 (MD-2) is a lipopolysaccharide (LPS)-binding protein usually coexpressed with and binding to Toll-like receptor 4 (TLR4), conferring LPS responsiveness of immune cells. MD-2 is also found as a soluble protein. Soluble MD-2 (sMD-2) levels are markedly elevated in plasma from patients with severe infections, and in other fluids from inflamed tissues. We show that sMD-2 is a type II acute-phase protein. Soluble MD-2 mRNA and protein levels are up-regulated in mouse liver after the induction of an acute-phase response. It is secreted by human hepatocytic cells and up-regulated by interleukin-6. Soluble MD-2 binds to Gram-negative but not Gram-positive bacteria, and sMD-2 secreted by hepatocytic cells is an essential cofactor for the activation of TLR4-expressing cells by Gram-negative bacteria. Soluble MD-2 opsonization of Gram-negative bacteria accelerates and enhances phagocytosis, principally by polymorphonuclear neutrophils. In summary, our results demonstrate that sMD-2 is a newly recognized type II acute-phase reactant, an opsonin for Gram-negative bacteria, and a cofactor essential for the activation of TLR4-expressing cells. This suggests that sMD-2 plays a key role in the host innate immune response to Gram-negative infections.