Somatic cell mutagenesis is a powerful tool for characterizing receptor systems. We reported previously two complementation groups of mutant cell lines derived from CD14-transfected Chinese hamster ovary--K1 fibroblasts defective in responses to bacterial endotoxin. Both classes of mutants expressed a normal gene product for Toll-like receptor (TLR)4, and fully responded to stimulation by tumor necrosis factor (TNF)-alpha or interleukin (IL)-1 beta. We identified the lesion in one of the complementation groups in the gene for MD-2, a putative TLR4 coreceptor. The nonresponder phenotype of this mutant was reversed by transfection with MD-2. Cloning of MD-2 from the nonresponder cell line revealed a point mutation in a highly conserved region resulting in a C95Y amino acid exchange. Both forms of MD-2 colocalized with TLR4 on the cell surface after transfection, but only the wild-type cDNA reverted the lipopolysaccharide (LPS) nonresponder phenotype. Furthermore, soluble MD-2, but not soluble MD-2(C95Y), functioned to enable LPS responses in cells that expressed TLR4. Thus, MD-2 is a required component of the LPS signaling complex and can function as a soluble receptor for cells that do not otherwise express it. We hypothesize that MD-2 conformationally affects the extracellular domain of TLR4, perhaps resulting in a change in affinity for LPS or functioning as a portion of the true ligand for TLR4.