Dysregulated innate immune responses contribute to multisystem inflammatory syndrome in children (MIS-C), characterized by gastrointestinal, mucocutaneous, and/or cardiovascular injury occurring weeks after SARS-CoV-2 exposure. To investigate innate immune functions in MIS-C, we stimulated ex vivo peripheral blood cells from MIS-C patients with agonists of Toll-like receptors (TLR), key innate immune response initiators. We found severely dampened cytokine responses and elevated gene expression of negative regulators of TLR signaling. Increased plasma levels of zonulin, a gut leakage marker, were also detected. These effects were also observed in children enrolled months after MIS-C recovery. Moreover, cells from MIS-C children carrying rare genetic variants of lysosomal trafficking regulator (LYST) were less refractory to TLR stimulation and exhibited lysosomal and mitochondrial abnormalities with altered energy metabolism. Our results strongly suggest that MIS-C hyperinflammation and/or excessive or prolonged stimulation with gut-originated TLR ligands drive immune cells to a lasting refractory state. TLR hyporesponsiveness is likely beneficial, as suggested by excess lymphopenia among rare LYST variant carriers. Our findings point to cellular mechanisms underlying TLR hyporesponsiveness; identify genetic determinants that may explain the MIS-C clinical spectrum; suggest potential associations between innate refractory states and long COVID; and highlight the need to monitor long-term consequences of MIS-C.