The human microbiota provides tonic signals that calibrate the host immune response1,2, but their identity is unknown. Bacterial peptidoglycan (PGN) subunits are likely candidates since they are well-known immunity-enhancing adjuvants, released by most bacteria during growth, and have been found in the blood of healthy people3-7. We developed a monoclonal antibody (mAb), 2E7, that targets muramyl-L-alanyl-D-isoglutamine (MDP), a conserved and minimal immunostimulatory structure of PGN. Using 2E7-based assays, we detected PGN ubiquitously in human blood at a broad range of concentrations that is relatively stable in each individual. We also detected PGN in the serum of several warm-blooded animals. However, PGN is barely detectable in the serum of germ-free mice, indicating that its origin is the host microbiota. Neutralization of circulating PGN via intraperitoneal administration of 2E7 suppressed the development of autoimmune arthritis and experimental autoimmune encephalomyelitis in mice. Arthritic NOD2-/- mice lacking the MDP sensor did not respond to 2E7, indicating that 2E7 dampens inflammation by blocking nucleotide-binding oligomerization domain-containing protein 2 (NOD2)-mediated pathways. We propose that circulating PGN acts as a natural immune potentiator that tunes the host immune response; altering its level is a promising therapeutic strategy for immune-mediated diseases.