Lipid A, the conserved portion of endotoxin or lipopolysaccharide, is the major mediator of septic shock, and therefore endotoxin-neutralizing molecules could have important clinical applications. The crystal structure of recombinant Limulus anti-lipopolysaccharide factor (rLALF) (Hoess, A., Watson, S., Siber, G. R., and Liddington, R. (1993) EMBO J. 12, 3351-3356), has been used to design synthetic peptides comprising different parts of the exposed amphipathic loop in the proposed endotoxin-binding domain of rLALF. We investigated the minimal requirements of rLALF for endotoxin and lipid A binding with linear 10-mer peptides. Only one linear peptide, corresponding to amino acids 36-45 of rLALF, was able to bind lipid A and endotoxin above background levels. Cyclic peptides, however, bind lipid A and endotoxin with high affinity, presumably by mimicking the three dimensional characteristics of the exposed hairpin loop. The cyclic peptide including amino acids 36-47, LALF-14, has a lipid A binding activity comparable to the high affinity endotoxin-binding peptide polymyxin B. LALF-14 has an improved serum half-life compared with its linear counterpart, and it is not toxic for cultured human monocytes or red blood cells. In mice, it blocks tumor necrosis factor-alpha induction after endotoxin challenge. The characterization of the minimal endotoxin-binding domain of rLALF and, importantly, its structure provided a basis for designing small molecules that could have prophylactic and/or therapeutic properties in humans for the management of septic shock.