Xylaria nigripes, also known as Wu Ling Shen, is popular for treating insomnia and trauma in traditional Chinese medicine. This study aimed to examine the anti-inflammatory activity and bioactive constituents of cultivated X. nigripes fruiting bodies in lipopolysaccharide (LPS)-treated RAW 264.7 macrophages. Results showed that among the different extracts, the hexane fraction exhibited the best protection against cell toxicity induced by 1 μg/mL LPS and the strongest inhibitory effect on nitric oxide (NO) production. This fraction led to the isolation of 2 bioactive compounds (namely, XN-CP1 and XN-CP2), which were confirmed to be ergostarien-3β-ol and ergosterol peroxide, respectively. Although both XN-CP1 and XN-CP2 showed good inhibitory effects on NO, tumor necrosis factor-α, interleukin (IL)-1β, IL-6, and prostaglandin E2 production in LPS-stimulated macrophages, XN-CP2 was shown to have a stronger anti-inflammatory activity; this was further supported by its strong suppressive effects on inducible nitric oxide synthase (iNOS) and cyclooxygenase-2 (COX-2) expression and nuclear factor (NF)-κB activation. These results conclude that ergosterol peroxide (XN-CP2) could be the main bioactive compound contributing to the potent anti-inflammatory activity of X. nigripes, and its mechanism of action is mediated through inhibition of iNOS and COX-2 expression via the NF-κB signaling pathway.