An initial exposure to lipopolysaccharide (LPS) induces a transient state of hyporesponsiveness to a subsequent challenge with LPS. The mechanism underlying this phenomenon, termed endotoxin tolerance, remains poorly understood despite a recent resurgence of interest in this area. We demonstrate herein that SHIP^−/− bone marrow-derived macrophages (BMmφs) and mast cells (BMMCs) do not display endotoxin tolerance. Moreover, an initial LPS treatment of wild-type BMmφs or BMMCs increases the level of SHIP, but not SHIP2 or PTEN, and this increase is critical for the hyporesponsiveness to subsequent LPS stimulation. Interestingly, this increase in SHIP protein is mediated by the LPS-induced production of autocrine-acting TGFβ and neutralizing antibodies to TGFβ block LPS-induced endotoxin tolerance. In vivo studies with SHIP^+/+ and SHIP^−/− mice confirm these in vitro findings and show a correlation between the duration of endotoxin tolerance and elevated SHIP levels.