Toll-like receptor 4 (TLR4) is a signaling receptor for lipopolysaccharide (LPS) but its interaction with MD-2 is required for efficient responses to LPS. Previous studies with deletion mutants indicate a critical role of the amino-terminal TLR4 region in interaction with MD-2. However, it is uncertain which region in TLR4 molecule directly binds to MD-2. The purpose of this study was to determine a critical stretch of primary sequence in the TLR4 region that directly binds MD-2 and is critical for LPS signaling. The synthetic TLR4 peptide corresponding to the TLR4 region Glu24-Lys47 directly binds to recombinant soluble MD-2 (sMD-2). The TLR4 peptide inhibited the binding of a recombinant soluble form of the extracellular TLR4 domain (sTLR4) to sMD-2 and significantly attenuated LPS-induced NF-B activation and IL-8 secretion in wild type TLR4-transfected cells. Reduction and S-carboxymethylation of sTLR4 abrogated its association with sMD-2. The TLR4 mutants, TLR4C29A, TLR4C40A and TLR4C29A,C40A were neither co-precipitated with MD-2 nor expressed on cell surface, and failed to transmit LPS signaling. These results demonstrate that the TLR4 region Glu24-Lys47 is a site for MD-2 binding, and that Cys29 and Cys40 within this region are critical residues for MD-2 binding and LPS signaling.