Sepsis, a systemic inflammatory response to infection, commonly progresses to acute lung injury (ALI), an inflammatory lung disease with high morbidity. We postulated that sepsis-associated ALI is initiated by degradation of the pulmonary endothelial glycocalyx, leading to neutrophil adherence and inflammation. Using intravital microscopy, we found that endotoxemia in mice rapidly induced pulmonary microvascular glycocalyx degradation via tumor necrosis factor-α (TNF-α)-dependent mechanisms. Glycocalyx degradation involved the specific loss of heparan sulfate and coincided with activation of endothelial heparanase, a TNF-α–responsive, heparan sulfate–specific glucuronidase. Glycocalyx degradation increased the availability of endothelial surface adhesion molecules to circulating microspheres and contributed to neutrophil adhesion. Heparanase inhibition prevented endotoxemia-associated glycocalyx loss and neutrophil adhesion and, accordingly, attenuated sepsis-induced ALI and mortality in mice. These findings are potentially relevant to human disease, as sepsis-associated respiratory failure in humans was associated with higher plasma heparan sulfate degradation activity; moreover, heparanase content was higher in human lung biopsies showing diffuse alveolar damage than in normal human lung tissue.