Pattern recognition receptors are central to the responsiveness of various eukaryotic cell types when they encounter pathogen-associated molecular patterns. IFN-gamma is a cytokine that is elevated in humans and other animals with bacterial infection and enhances the LPS-induced production of antibacterial mediators by macrophages. Mice lacking the pattern recognition receptor, TLR4, respond very poorly to stimulation by LPS, but administration of IFN-gamma has been described as restoring apparent sensitivity to this stimulatory ligand. In this study, we show that IFN-gamma primes murine macrophages stimulated by crude LPS preparations to produce the antibacterial mediator NO, a proportion of which is independent of TLRs 2 and 4. This response is lost in tlr4-/- IFN-gamma-primed murine macrophages when the LPS preparation is highly purified. NO is also induced if chemically synthesized muramyl dipeptide, an intermediate in the biosynthesis of peptidoglycan, is used to stimulate macrophages primed with IFN-gamma. This is absolutely dependent on the presence of a functional nucleotide oligomerization domain-2 (NOD-2) protein. IFN-gamma increases NOD-2 expression and dissociates this protein from the actin cytoskeleton within the cell. IFN-gamma priming of macrophages therefore reveals a key proinflammatory role for NOD-2. This study also shows that the effect of IFN-gamma in restoring inflammatory responses to gram-negative bacteria or bacterial products in mice with defective TLR4 signaling is likely to be due to a response to peptidoglycan, not LPS.