Abstract The SHIP converts phosphatidylinositol 3,4,5 triphosphate to phosphatidyl 3,4 biphosphate. SHIP has negative regulatory functions on PI3K-dependent signaling pathways, which occupy important roles in modulating neutrophil functions. We used neutrophils from transgenic SHIP−/− and SHIP+/+ mice that were stimulated with peptidoglycan (PGN) to examine the role of SHIP in TLR2-induced neutrophil activation. SHIP−/− neutrophils demonstrated significantly increased activation of the PI3K-dependent kinase Akt after exposure to PGN. Release of cytokines and chemokines, including TNF-α, IL-1β, IL-6, IL-10, and MIP-2, was also increased in SHIP−/− compared with SHIP+/+ neutrophils. There was no difference in the nuclear translocation of the transcriptional factor NF-κB between PGN-stimulated SHIP−/− and SHIP+/+ neutrophils. However, phosphorylation of the p65 subunit of NF-κB, an event essential for optimal transcriptional activity of NF-κB, was increased in TLR2-activated SHIP−/− neutrophils. SHIP−/− neutrophils demonstrated greater activation of ERK1/2 and p38 MAPKs than did SHIP+/+ neutrophils after exposure to PGN. The severity of acute lung injury induced by PGN was greater in SHIP−/− as compared with SHIP+/+ mice. These results demonstrate that SHIP has a negative regulatory role in TLR2-induced neutrophil activation and in the development of related in vivo neutrophil-dependent inflammatory processes, such as acute lung injury.