Peptidoglycan-derived muramyl dipeptide (MDP) activates innate immunity via the host sensor NOD2. Although MDP is N-acetylated in most bacteria, mycobacteria and related Actinomycetes convert their MDP to an N-glycolylated form through the action of N-acetyl muramic acid hydroxylase (NamH). We used a combination of bacterial genetics and synthetic chemistry to investigate whether N-glycolylation of MDP alters NOD2-mediated immunity. Upon infecting macrophages with 12 bacteria, tumor necrosis factor (TNF) alpha secretion was NOD2 dependent only with mycobacteria and other Actinomycetes (Nocardia and Rhodococcus). Disruption of namH in Mycobacterium smegmatis obrogated NOD2-mediated TNF secretion, which could be restored upon gene complementation. In mouse macrophages, N-glycolyl MDP was more potent than N-acetyl MDP at activating RIP2, nuclear factor kappaB, c-Jun N-terminal kinase, and proinflammatory cytokine secretion. In mice challenged intraperitoneally with live or killed mycobacteria, NOD2-dependent immune responses depended on the presence of bacterial namH. Finally, N-glycolyl MDP was more efficacious than N-acetyl MDP at inducing ovalbumin-specific T cell immunity in a model of adjuvancy. Our findings indicate that N-glycolyl MDP has a greater NOD2-stimulating activity than N-acetyl MDP, consistent with the historical observation attributing exceptional immunogenic activity to the mycobacterial cell wall.