The normal intestinal epithelium is not inflamed despite contact with a high density of commensal bacteria. Intestinal epithelial cells (IEC) express low levels of TLR4 and MD-2 and are lipopolysaccharide (LPS)-unresponsive. We hypothesized that immune-mediated signals regulate the expression of TLR4 and MD-2 in IEC. Expression of TLR4 and MD-2 was examined in normal colonic epithelial cells or intestinal epithelial cell lines. The effect of the cytokines interferon (IFN)-gamma, IFN-alpha, and tumor necrosis factor-alpha (TNF-alpha) on TLR4 and MD-2 expression was examined by reverse transcription-PCR and Western blot. NF-kappaB transcriptional activation and interleukin-8 secretion were used as measures of LPS responsiveness. Native colonic epithelial cells and IEC lines express a low level of TLR4 and MD-2 mRNA. IFN-gamma regulates MD-2 expression in both IEC lines, whereas IFN-gamma and TNF-alpha regulate TLR4 mRNA expression in IEC lines. Pre-incubation with IFN-gamma and/or TNF-alpha sensitizes IEC to LPS-dependent interleukin-8 secretion. To examine MD-2 transcriptional regulation, we cloned a 1-kb sequence proximal to the MD-2 gene translational start site. This promoter directed expression of a reporter gene in endothelial cells and IEC. IFN-gamma positively regulated MD-2 promoter activity in IEC. Co-expression of a STAT inhibitor, SOCS3, blocked IFN-gamma-mediated MD-2 promoter activation. T cell-derived cytokines lead to increased expression of TLR4 and MD-2 and LPS-dependent pro-inflammatory cytokine secretion in IEC. IFN-gamma regulates expression of the critical TLR4 co-receptor MD-2 through the Janus tyrosine kinase-STAT pathway. Th1 cytokines may initiate or perpetuate intestinal inflammation by altering toll-like receptor expression and bacterial reactivity.