Potent Toll-like receptor (TLR) 4-dependent cell activation by endotoxin depends on sequential transfer of monomers of endotoxin from an aggregated form to CD14 via the lipopolysaccharide-binding protein (LBP) and then to MD-2. We now show that monomeric endotoxin can be transferred in reverse from MD-2 to CD14 but not to LBP. Reverse transfer requires ~1000-fold molar excess of CD14 to endotoxin:MD-2. Transfer of endotoxin from MD-2 to extracellular soluble (s)CD14 reduces activation of cells expressing TLR4 without MD-2. However, transfer of endotoxin from MD-2 to membrane (m)CD14 makes cells expressing MD-2/TLR4 sensitive to activation by the endotoxin:MD-2 complex. An endotoxin:mutant (F126A) MD-2 complex that does not activate cells expressing TLR4 alone, potently activates cells expressing mCD14, MD-2 and TLR4, by transferring endotoxin to mCD14 which then transfers endotoxin to endogenous wild-type MD-2/TLR4. These findings describe a novel pathway of endotoxin transfer that provides an additional layer of regulation of cell activation by endotoxin.