Ulcerative colitis (UC) is believed to be triggered by a dysregulated inflammatory response to the intestinal microbiota. Acyloxyacyl hydrolase (AOAH) is a unique host lipase that inactivates Gram-negative bacterial lipopolysaccharides (LPS). After finding that AOAH produced in the intestine decreases stimulatory LPS levels in colon contents, we used the dextran sodium sulfate (DSS) model to test the enzyme's ability to prevent colitis in mice. We found that AOAH played a protective role by decreasing colonic inflammation, tissue injury, and barrier permeability. Increasing or decreasing intestinal LPS abundance exacerbated or alleviated colitis, respectively, suggesting that AOAH prevents colitis by reducing stimulatory intestinal LPS levels. AOAH also mitigated colitis-associated colorectal cancer. This highly conserved enzyme may exert its protective effects by preventing LPS-induced injury to the epithelial cell mitochondria that are important for restoring the mucosal epithelial barrier after injury. By decreasing intestinal levels of stimulatory LPS, AOAH prevents colitis and colorectal cancer.