Neonates at risk of childhood atopy and asthma are characterized by gut microbiome perturbation and fecal enrichment of 12,13 DiHOME. However, the underlying mechanism and source of this metabolite in neonates remain poorly understood. Here we show that 12,13 DiHOME treatment of human dendritic cells altered peroxisome proliferator-activated receptor γ regulated gene expression and decreased immune tolerance. In mice, 12,13 DiHOME treatment prior to airway challenge exacerbated pulmonary inflammation and decreased lung regulatory T cells. Metagenomic sequencing identified approximately 1,400 bacterial epoxide hydrolase genes in neonatal feces. Three of which could produce 12,13 DiHOME in vitro. In our neonatal cohort, these three strain-specific bacterial genes and their product, 12,13 DiHOME, are associated with increased odds of atopy and asthma development in childhood, suggesting that early-life gut-microbiome risk factors may shape immune tolerance and identify high-risk neonates years in advance of clinical symptoms.