Lipopolysaccharide (LPS) from the Gram-negative bacterial outer membrane potently activates the human innate immune system. LPS is recognized by the Toll-like receptor 4/myeloid differentiation factor-2 (TLR4/MD2) complex, leading to the release of pro-inflammatory cytokines. Alkaline phosphatase (AP) is currently being investigated as an anti-inflammatory agent for detoxifying LPS through dephosphorylating lipid A, thus providing a potential treatment for managing both acute (sepsis) and chronic (metabolic endotoxemia) pathologies wherein aberrant TLR4/MD2 activation has been implicated. Endogenous LPS preparations are chemically heterogeneous, and little is known regarding the LPS chemotype substrate range of AP. Here, we investigated the activity of AP on a panel of structurally defined LPS chemotypes isolated from Escherichia coli and demonstrate that calf intestinal AP (cIAP) has only minimal activity against unmodified enteric LPS chemotypes. Pi was only released from a subset of LPS chemotypes harboring spontaneously labile phosphoethanolamine (PEtN) modifications connected through phosphoanhydride bonds. We demonstrate that the spontaneously hydrolyzed O-phosphorylethanolamine is the actual substrate for AP. We found that the 1- and 4'-lipid A phosphate groups critical in TLR4/MD2 signaling become susceptible to hydrolysis only after de-O-acylation of ester linked primary acyl chains on lipid A. Furthermore, PEtN modifications on lipid A specifically enhanced hTLR4 agonist activity of underacylated LPS preparations. Computational binding models are proposed to explain the limitation of AP substrate specificity imposed by the acylation state of lipid A, and the mechanism of PEtN in enhancing hTLR4/MD2 signaling.