The role of Endoplasmic Reticulum Chaperone and Signaling Regulator BiP/GRP78 in acute inflammatory injury, particularly in the context of lung endothelium, is poorly defined. In his study, we monitored the effect of SubAB, a holoenzyme that cleaves and specifically inactivates BiP/GRP78 and its inactive mutant SubAA272B on lung inflammatory injury in an aerosolized LPS inhalation mouse model of acute lung injury (ALI). Analysis of lung homogenates and bronchoalveolar lavage (BAL) fluid showed that LPS-induced lung inflammation and injury were significantly inhibited in SubAB- but not in SubAA272B-treated mice. SubAB-treated mice were also protected from LPS-induced decrease in lung compliance. Gene transfer of dominant negative mutant of BiP in the lung endothelium protected against LPS-induced lung inflammatory responses. Consistent with this, stimulation of endothelial cells (EC) with thrombin caused an increase in BiP/GRP78 levels and inhibition of ER stress with 4-phenylbutyric acid (4-PBA) prevented this response as well as increase in VCAM-1, ICAM-1, IL-6, and IL-8 levels. Importantly, thrombin-induced Ca2+ signaling and EC permeability were also prevented upon BiP/GRP78 inactivation. The above EC responses are mediated by intracellular BiP/GRP78 and not by cell surface BiP/GRP78. Together, these data identify intracellular BiP/GRP78 as a novel regulator of endothelial dysfunction associated with ALI.