Authenticated key exchange is desired in scenarios where two participants must exchange sensitive information over an untrusted channel but do not trust each other at the outset of the exchange. As a unique hardware-based random oracle, physical unclonable functions (PUFs) can embed cryptographic hardness and binding properties needed for a secure, interactive authentication system. In this paper, we propose a lightweight protocol, termed PUF-MAKE, to achieve bilateral mutual authentication between two untrusted parties with the help of a trusted server and secure physical devices. At the end of the protocol, both parties are authenticated and possess a shared session key that they can use to encrypt sensitive information over an untrusted channel. The PUF’s underlying entropy hardness characteristics and the key-encryption-key (KEK) primitive act as the root of trust in the protocol’s construction. Other salient properties include a lightweight construction with minimal information stored on each device, a key refresh mechanism to ensure a fresh key is used for every authentication, and robustness against a wide range of attacks. We evaluate the protocol on a set of three FPGAs and a desktop server, with the computational complexity calculated as a function of primitive operations. A composable security model is proposed and analyzed considering a powerful adversary in control of all communications channels. In particular, session key confidentiality is proven through formal verification of the protocol under strong attacker (Dolev-Yao) assumptions, rendering it viable for high-security applications such as digital currency.