The nucleotide-binding oligomerization domain (NOD) protein, NOD2, belonging to the intracellular NOD-like receptor family, detects conserved motifs in bacterial peptidoglycan and promotes their clearance through activation of a proinflammatory transcriptional program and other innate immune pathways, including autophagy and endoplasmic reticulum stress. An inactive form due to mutations or a constitutive high expression of NOD2 is associated with several inflammatory diseases, suggesting that balanced NOD2 signaling is critical for the maintenance of immune homeostasis. In this review, we discuss recent developments about the pathway and mechanisms of regulation of NOD2 and illustrate the principal functions of the gene, with particular emphasis on its central role in maintaining the equilibrium between intestinal microbiota and host immune responses to control inflammation. Furthermore, we survey recent studies illustrating the role of NOD2 in several inflammatory diseases, in particular, inflammatory bowel disease, of which it is the main susceptibility gene.