Drosophila rely entirely on an innate immune response to combat microbial infection. Diaminopimelic acid-containing peptidoglycan, produced by Gram-negative bacteria, is recognized by two receptors, PGRP-LC and PGRP-LE, and activates a homolog of transcription factor NF-κB through the Imd signaling pathway. Here we show that full-length PGRP-LE acted as an intracellular receptor for monomeric peptidoglycan, whereas a version of PGRP-LE containing only the PGRP domain functioned extracellularly, like the mammalian CD14 molecule, to enhance PGRP-LC-mediated peptidoglycan recognition on the cell surface. Interaction with the imd signaling protein was not required for PGRP-LC signaling. Instead, PGRP-LC and PGRP-LE signaled through a receptor-interacting protein homotypic interaction motif-like motif. These data demonstrate that like mammals, drosophila use both extracellular and intracellular receptors, which have conserved signaling mechanisms, for innate immune recognition.