The discovery that polymorphisms in the NOD2 (nucleotide-binding oligomerization domain containing 2) gene are associated with a greatly increased risk for the development of Crohn's disease has provided a means to achieve a deeper understanding of the dysregulation of mucosal immune responses to the commensal intestinal organisms that is thought to underlie this disease. NOD2 is a NOD-like receptor (NLR) family member that senses and responds to bacterial wall peptides; thus, the most widely held view of the relation of the NOD2 polymorphisms with Crohn's disease is that these polymorphisms lead to deficient immune responses to gut bacteria, and these, in turn, lead to quantitative or qualitative changes in the bacterial population in the gut lumen or lamina propria that cause inflammation at this site. Initially, this view was based mainly on the observation that defective NOD2 function can result in reduced α-defensin production by intestinal Paneth cells and that such impairment leads to loss of host defense against gut bacteria. In this review, we reconsider this possibility and marshal evidence that it is not in fact likely to be a prime element of Crohn's disease causation. More recently, evidence has been accumulating that the NOD2 dysfunction leads to Crohn's inflammation by inducing changes in the gut microbiome that influence immune effector or regulatory function. We review the strengths and weaknesses of this emerging hypothesis. Finally, we consider the possibility that NOD2 dysfunction can lead to inflammation because of a second and somewhat overlooked aspect of its function, that as an immunoregulator of innate immune responses. In particular, we review the body of evidence that NOD2 stimulation activates a cross-tolerance response that downregulates and thus prevents excessive TLR responses that cause Crohn's inflammation.