Background and Aims: Crohn's disease is strongly associated with double mutations in NOD2/CARD15. Three common mutations (Arg702Trp, Gly908Arg, Leu1007fs) impair innate immune responses to bacterial muramyl dipeptide. Rare NOD2 variants occur, but it is difficult to both identify them and assess their functional effect. We assessed the true frequency of defective muramyl dipeptide sensing in Crohn's disease and developed a rapid diagnostic assay. Materials and Methods: An ex vivo assay was established and validated based on muramyl dipeptide stimulation of peripheral blood mononuclear cell cytokine production. Muramyl dipeptide-induced enhancement of interleukin (IL)-8 secretion and synergistic increase in lipopolysaccharide-induced IL-1β secretion were studied. Assay results were compared with NOD2 genotype status (3 common mutations and rare variants) in 91 individuals including a prospective cohort of 49 patients with Crohn's disease. Results: The assay was highly sensitive and specific for detection of profound defects in muramyl dipeptide sensing caused by double NOD2 mutations (IL-8 P = 0.0002; IL-1β P = 0.0002). Disease state, active inflammation, or concurrent use of immunosuppressive medication did not influence results. Healthy NOD2 heterozygotes had modest impairment of muramyl dipeptide induced IL-8 secretion (P = 0.003). Only 1 of 7 patients with Crohn's disease with both a common mutation and a rare variant had a profound muramyl dipeptide-sensing defect. Conclusions: Profound defects in muramyl dipeptide sensing were found in 10% of patients with Crohn's disease. Defects were caused exclusively by inherited mutations in NOD2. The ex vivo assay has multiple potential applications as a clinical diagnostic tool to distinguish patients with muramyl dipeptide-sensing defects and for research investigation.