The innate immune system needs to distinguish between harmful and innocuous stimuli to adapt its activation to the level of threat. How Drosophila mounts differential immune responses to dead and live Gram-negative bacteria using the single peptidoglycan receptor PGRP-LC is unknown. Here we describe rPGRP-LC, an alternative splice variant of PGRP-LC that selectively dampens immune response activation in response to dead bacteria. rPGRP-LC-deficient flies cannot resolve immune activation after Gram-negative infection and die prematurely. The alternative exon in the encoding gene, here called rPGRP-LC, encodes an adaptor module that targets rPGRP-LC to membrane microdomains and interacts with the negative regulator Pirk and the ubiquitin ligase DIAP2. We find that rPGRP-LC-mediated resolution of an efficient immune response requires degradation of activating and regulatory receptors via endosomal ESCRT sorting. We propose that rPGRP-LC selectively responds to peptidoglycans from dead bacteria to tailor the immune response to the level of threat.