Abstract TLR overactivation may lead to end organ damage and serious acute and chronic inflammatory conditions. TLR responses must therefore be tightly regulated to control disease outcomes. We show in this study the ability of the soluble form of TLR2 (sTLR2) to regulate proinflammatory responses, and demonstrate the mechanisms underlying sTLR2 regulatory capacity. Cells overexpressing sTLR2, or stimulated in the presence of the sTLR2 protein, are hyporesponsive to TLR2 ligands. Regulation was TLR2 specific, and affected NF-κB activation, phagocytosis, and superoxide production. Natural sTLR2-depleted serum rendered leukocytes hypersensitive to TLR2-mediated stimulation. Mice administered sTLR2 together with Gram-positive bacteria-derived components showed lower peritoneal levels of the neutrophil (PMN) chemoattractant, keratinocyte-derived chemokine; lower PMN numbers; and a reduction in late apoptotic PMN. Mononuclear cell recruitment remained unaffected, and endogenous peritoneal sTLR2 levels increased. Notably, the capacity of sTLR2 to modulate acute inflammatory parameters did not compromise the ability of mice to clear live Gram-positive bacteria-induced infection. Mechanistically, sTLR2 interfered with TLR2 mobilization to lipid rafts for signaling, acted as a decoy microbial receptor, and disrupted the interaction of TLR2 with its coreceptor, CD14, by associating with CD14. These findings establish sTLR2 as a regulator of TLR2-mediated inflammatory responses, capable of blunting immune responses without abrogating microbial recognition and may inform the design of novel therapeutics against acute and chronic inflammatory conditions.