Elevated plasma lipopolysaccharide (LPS), an indicator of microbial translocation from the gut, is a likely cause of systemic immune activation in chronic HIV infection. LPS induces monocyte activation and trafficking into brain, which are key mechanisms in the pathogenesis of HIV-associated dementia (HAD). To determine whether high LPS levels are associated with increased monocyte activation and HAD, we obtained peripheral blood samples from AIDS patients and examined plasma LPS by Limulus amebocyte lysate (LAL) assay, peripheral blood monocytes by FACS, and soluble markers of monocyte activation by ELISA. Purified monocytes were isolated by FACS sorting, and HIV DNA and RNA levels were quantified by real time PCR. Circulating monocytes expressed high levels of the activation markers CD69 and HLA-DR, and harbored low levels of HIV compared to CD4(+) T-cells. High plasma LPS levels were associated with increased plasma sCD14 and LPS-binding protein (LBP) levels, and low endotoxin core antibody levels. LPS levels were higher in HAD patients compared to control groups, and were associated with HAD independently of plasma viral load and CD4 counts. LPS levels were higher in AIDS patients using intravenous heroin and/or ethanol, or with Hepatitis C virus (HCV) co-infection, compared to control groups. These results suggest a role for elevated LPS levels in driving monocyte activation in AIDS, thereby contributing to the pathogenesis of HAD, and provide evidence that cofactors linked to substance abuse and HCV co-infection influence these processes.