The peptidoglycan (PGN)-recognition protein LF (PGRP-LF) is a specific negative regulator of the immune deficiency (Imd) pathway in Drosophila. We determine the crystal structure of the two PGRP domains constituting the ectodomain of PGRP-LF at 1.72 and 1.94 angstrom resolution. The structures show that the LFz and LFw domains do not have a PGN-docking groove that is found in other PGRP domains, and they cannot directly interact with PGN, as confirmed by biochemical-binding assays. By using surface plasmon resonance analysis, we show that the PGRP-LF ectodomain interacts with the PGRP-LCx ectodomain in the absence and presence of tracheal cytotoxin. Our results suggest a mechanism for downregulation of the Imd pathway on the basis of the competition between PRGP-LCa and PGRP-LF to bind to PGRP-LCx.