Peptidoglycan-derived muramyl dipeptide (MDP) activates innate immunity via the host sensor NOD2. Although MDP is N-acetylated in most bacteria, mycobacteria and related Actinomycetes convert their MDP to an N-glycolylated form through the action of N-acetyl muramic acid hydroxylase (NamH). We used a combination of bacterial genetics and synthetic chemistry to investigate whether N-glycolylation of MDP alters NOD2-mediated immunity. Upon infecting macrophages with 12 bacteria, tumor necrosis factor (TNF) α secretion was NOD2 dependent only with mycobacteria and other Actinomycetes (Nocardia and Rhodococcus). Disruption of namH in Mycobacterium smegmatis obrogated NOD2-mediated TNF secretion, which could be restored upon gene complementation. In mouse macrophages, N-glycolyl MDP was more potent than N-acetyl MDP at activating RIP2, nuclear factor κB, c-Jun N-terminal kinase, and proinflammatory cytokine secretion. In mice challenged intraperitoneally with live or killed mycobacteria, NOD2-dependent immune responses depended on the presence of bacterial namH. Finally, N-glycolyl MDP was more efficacious than N-acetyl MDP at inducing ovalbumin-specific T cell immunity in a model of adjuvancy. Our findings indicate that N-glycolyl MDP has a greater NOD2-stimulating activity than N-acetyl MDP, consistent with the historical observation attributing exceptional immunogenic activity to the mycobacterial cell wall.