Pattern recognition receptor (PRR) that detects bacterial peptidoglycan fragments and other danger signals and plays an important role in gastrointestinal immunity. Upon stimulation by muramyl dipeptide (MDP), a fragment of bacterial peptidoglycan, binds the proximal adapter receptor-interacting RIPK2, which recruits ubiquitin ligases as XIAP, BIRC2, BIRC3, INAVA and the LUBAC complex, triggering activation of MAP kinases and activation of NF-kappa-B signaling. This in turn leads to the transcriptional activation of hundreds of genes involved in immune response. Required for MDP-induced NLRP1-dependent CASP1 activation and IL1B release in macrophages. Component of an autophagy-mediated antibacterial pathway together with ATG16L1. Plays also a role in sensing single-stranded RNA (ssRNA) from viruses. Interacts with mitochondrial antiviral signaling/MAVS, leading to activation of interferon regulatory factor-3/IRF3 and expression of type I interferon. Besides recognizing pathogens, participates in surveillance of cellular homeostasis through sensing and binding to the cytosolic metabolite sphingosine-1-phosphate and then initating inflammation process. Component of a signaling complex consisting of ARHGEF2, NOD2 and RIPK2. Interacts (via CARD domain) with RIPK2 (via CARD domain). Interacts with ATG16L1. Interacts (via NACHT domain) with CARD9. Interacts with ANKRD17 (via N-terminus). Interacts with HSPA1A; the interaction enhances NOD2 stability. Interacts (via both CARD domains) with HSP90; the interaction enhances NOD2 stability. Interacts (via CARD domain) with SOCS3; the interaction promotes NOD2 degradation. Interacts (via CARD domain) with ERBBI2P; the interaction inhibits activation of NOD2. Interacts (via CARD domain) with CASP1; this interaction leads to IL1B processing. Also interacts with CASP4. Interacts with NLRP1; this interaction is enhanced in the presence of muramyl dipeptide (MDP) and leads to increased IL1B release. Interacts with MAPKBP1; the interaction is enhanced in the presence of muramyl dipeptide (MDP). Interacts with INAVA; the interaction takes place upon PRR stimulation. Interacts with ANKHD1, C10ORF67, CHMP5, DOCK7, ENTR1, KRT15, LDOC1, PPP1R12C, PPP2R3B, TRIM41 and VIM (By similarity). The ATG16L1-binding motif mediates interaction with ATG16L1. Intramolecular interactions between the N-terminal moiety and the leucine-rich repeats (LRR) may be important for autoinhibition in the absence of activating signal. In the absence of LRRs, the protein becomes a constitutive activator of CASP1 cleavage and proIL1B processing. Polyubiquitinated following MDP stimulation, leading to proteasome-mediated degradation. Palmitoylated. Palmitoylation is required for proper recruitment to the bacterial entry site and hence for proper signaling upon cognate peptidoglycan detection.