The intestinal epithelium provides a critical interface between lumenal bacteria and the mucosal immune system. Whereas normal commensal flora do not trigger acute inflammation, pathogenic bacteria trigger a potent inflammatory response. Our studies emanate from the hypothesis that the intestinal epithelium is normally hyporesponsive to commensal pathogen-associated molecular patterns (PAMPs) such as LPS. Our data demonstrate that normal human colonic epithelial cells and lamina propria cells express low levels of TLR4 and its co-receptor MD-2. This expression pattern is mirrored by intestinal epithelial cell (IEC) lines. Co-expression of TLR4 and MD-2 is necessary and sufficient for LPS responsiveness in IEC. Moreover, LPS sensing occurs along the basolateral membrane of polarized IEC in culture. Expression of MD-2 is regulated by IFN-gamma. Cloning of the MD-2 promoter demonstrates that promoter activity is increased by IFN-gamma and blocked by the STAT inhibitor SOCS3. We conclude from our studies that the intestinal epithelium down-regulates expression of TLR4 and MD-2 and is LPS unresponsive. The Th1 cytokine IFN-gamma up-regulates expression of MD-2 in a STAT-dependent fashion. The results of our studies have important implications for understanding human inflammatory bowel diseases.