Systemic release of endotoxin (LPS) after Gram-negative infection initiates a cascade of host cytokines that are thought to be the direct cause of shock, multisystem organ failure, and death. Endogenous LPS-binding proteins may play a role in regulating LPS toxicity in vivo. The human neutrophil granule protein bactericidal/permeability-increasing protein (BPI) shares sequence homology and immunocrossreactivity with an acute phase lipopolysaccharide binding protein (LBP) which has been shown to bind to LPS and accelerate LPS activation of neutrophils and macrophages. Although structurally similar, LBP and BPI are apparently functionally antagonistic. We previously showed that BPI inhibits LPS-mediated neutrophil activation in vitro. Here we demonstrate that BPI binds to LPS near the lipid A domain, and formation of the LPS-BPI complex abrogates detrimental host responses to LPS. For example, BPI blocks LPS-stimulated TNF release in vitro and in vivo, and LPS complexed to BPI is not pyrogenic in rabbits. Results demonstrating that BPI is released by stimulated human neutrophils further support the idea that BPI functions extracellularly in vivo to neutralize endotoxin. Taken together, these data argue that BPI neutralizes the toxic effects of LPS in vivo, and that BPI may represent a new therapeutic approach to the treatment of endotoxic shock.