NOD2 is an intracellular innate immune receptor that senses bacterial peptidoglycans. Although soluble in the cytosol, a portion of the protein is associated with the plasma membrane and endosomal compartments for microbial surveillance. Palmitoylation of NOD2 by zDHHC5 promotes its membrane recruitment to drive proinflammatory and antimicrobial responses to pathogenic invasion. A depalmitoylation step by an unknown protein, thioesterase, releases NOD2 from membranes into the cytosol, where the protein can then enter a new cycle of palmitoylation-depalmitoylation. Here, we identify α/β -hydrolase domain-containing protein 17 isoforms (ABHD17A, 17B, 17C) as the thioesterases responsible for depalmitoylation of NOD2. Inhibiting ABHD17 increased the plasmalemmal localization of both wild-type NOD2 and a subset of hypo-palmitoylated Crohn's disease-associated variants, resulting in increased NF-κB activation and production of pro-inflammatory cytokines in epithelial cells. These results suggest that targeted inhibition of ABHD17 may rescue some Crohn's disease-associated NOD2 variants.