Leukocyte-associated Ig-like receptor (LAIR)-1 is a collagen-receptor that inhibits immune cell function upon collagen binding. Next to LAIR-1, the human genome encodes LAIR-2, a putative soluble homolog. In this study we show, for the first time, that the LAIR-2 gene is broadly transcribed in human PBMC, mirroring the expression profile of LAIR-1. LAIR-2 protein is expressed as a soluble receptor exhibiting high affinity for various collagen molecules to which it binds in a hydroxyproline-dependent manner. In vitro stimulation of PBMC induces secretion of LAIR-2. We detect high amounts of LAIR-2 in urine of pregnant women, indicating that the soluble receptor is indeed produced in vivo and can be cleared from the body via urine. Furthermore, LAIR-2 levels are increased in synovial fluid of patients with rheumatoid arthritis as compared with osteoarthritis patients. We hypothesize that soluble LAIR-2 may function as a natural competitor for LAIR-1, thereby regulating its inhibitory potential. Indeed, LAIR-2 prevents binding of human LAIR-1 to collagens and LAIR-1 cross-linking in vitro, suggesting that the protein has an immunoregulatory function in vivo. Hence, we reveal a novel mechanism of immune regulation by a soluble LAIR receptor regulating the inhibitory potential of the membrane-bound LAIR-1 via competition for ligands.