The hypothesis that CD14 (an endotoxin receptor present on macrophages and neutrophils) acts as a cell-activating receptor for bacterial peptidoglycan was tested using mouse 70Z/3 cells transfected with human CD14. 70Z/3 cells transfected with an empty vector were unresponsive to insoluble and soluble peptidoglycan, as well as to low concentrations of endotoxin. 70Z/3-CD14 cells were responsive to both insoluble and soluble peptidoglycan, as well as to low concentrations of endotoxin, as measured by the expression of surface IgM, activation of NF-kappaB, and degradation of IkappaB-alpha. Peptidoglycan also induced activation of NF-kappaB and degradation of IkappaB-alpha in macrophage RAW264.7 cells. These peptidoglycan-induced effects (in contrast to endotoxin-induced effects) were not inhibited by polymyxin B. Both peptidoglycan- and endotoxin-induced activation of NF-kappaB were inhibited by anti-CD14 mAb. The N-terminal 151 amino acids of CD14 were sufficient for acquisition of full responsiveness to both peptidoglycan and endotoxin, but CD14 deletion mutants lacking four small regions within the N-terminal 65 amino acids showed differentially diminished responses to peptidoglycan and endotoxin. These results identify CD14 as the functional receptor for peptidoglycan and demonstrate that similar, but not identical sequences in the N-terminal 65-amino acid region of CD14 are critical for the NF-kappaB and IgM responses to both peptidoglycan and endotoxin.