Acyloxyacyl hydrolase, a lysosomal enzyme that deacylates and thus detoxifies lipopolysaccharide (endotoxin) has been identified in bovine peripheral blood and milk neutrophils. Enzymatic activity increases on a per neutrophil basis during cases of experimental Escherichia coli mastitis. The objective of this study was to quantify acyloxyacyl hydrolase activity from milk neutrophils collected from mammary glands naturally infected with a variety of bacteria. Acyloxyacyl hydrolase activity was detectable in milk neutrophils isolated from cases of both Gram-negative and Gram-positive bacterial infections, with highest activities found in milk neutrophils from glands infected with organisms known to cause the most severe forms of mastitis. In addition, acyloxyacyl hydrolase activity was inhibited to varying degrees in mastitic milk by a nonprotein inhibitory substance. Nonenzymatic deacylation of endotoxin also occurred in mastitic milk, but to a lesser degree than enzymatic deacylation. Nonenzymatic deacylation of endotoxin was not found to occur in clinically normal milk. Severity of coliform mastitis in individual cows may be dependent in part on the interaction of endotoxin with milk neutrophil acyloxyacyl hydrolase activity, inhibition of acyloxyacyl hydrolase activity by an inhibitory substance, and the inherent ability of milk to deacylate endotoxin nonenzymatically.