Neonates at risk of childhood atopy and asthma exhibit perturbation of the gut microbiome, metabolic dysfunction and increased concentrations of 12,13-diHOME in their faeces. However, the mechanism, source and contribution of this lipid to allergic inflammation remain unknown. Here, we show that intra-abdominal treatment of mice with 12,13-diHOME increased pulmonary inflammation and decreased the number of regulatory T (Treg) cells in the lungs. Treatment of human dendritic cells with 12,13-diHOME altered expression of PPARγ-regulated genes and reduced anti-inflammatory cytokine secretion and the number of Treg cells in vitro. Shotgun metagenomic sequencing of neonatal faeces indicated that bacterial epoxide hydrolase (EH) genes are more abundant in the gut microbiome of neonates who develop atopy and/or asthma during childhood. Three of these bacterial EH genes (3EH) specifically produce 12,13-diHOME, and treatment of mice with bacterial strains expressing 3EH caused a decrease in the number of lung Treg cells in an allergen challenge model. In two small birth cohorts, an increase in the copy number of 3EH or the concentration of 12,13-diHOME in the faeces of neonates was found to be associated with an increased probability of developing atopy, eczema or asthma during childhood. Our data indicate that elevated 12,13-diHOME concentrations impede immune tolerance and may be produced by bacterial EHs in the neonatal gut, offering a mechanistic link between perturbation of the gut microbiome during early life and atopy and asthma during childhood.