The extent to which the mammalian host is capable of enzymatic degradation and detoxification of bacterial lipopolysaccharides (LPS) is still unknown. Partial deacylation of LPS by the enzyme acyloxyacyl hydrolase (AOAH) provides such a mechanism, but its participation in the disposal of LPS under physiological conditions has not been established. In this study, deacylation of isolated radiolabeled LPS by both cellular and extracellular components of a sterile inflammatory peritoneal exudate elicited in rabbits was examined ex vivo. AOAH-like activity, tested under artificial conditions (pH 5.4, 0.1% Triton X-100), was evident in all components of the exudate (mononuclear cells [MNC] > polymorphonuclear leukocytes [PMN] > inflammatory [ascitic] fluid [AF]). Under more physiological conditions, in a defined medium containing purified LPS-binding protein, the LPS-deacylating activity of MNC greatly exceeded that of PMN. In AF, MNC (but not PMN) also produced rapid and extensive CD14-dependent LPS deacylation. Under these conditions, almost all MNC-associated LPS underwent deacylation within 1 h, a rate greatly exceeding that previously found in any cell type. The remaining extracellular LPS was more slowly subject to CD14-independent deacylation in AF. Quantitative analysis showed a comparable release of laurate and myristate but no release of 3-hydroxymyristate, consistent with an AOAH-like activity. These findings suggest a major role for CD14(+) MNC and a secondary role for AF in the deacylation of cell-free LPS at extravascular inflammatory sites.