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Dysregulated innate immune responses contribute to multisystem inflammatory syndrome in children (MIS-C), characterized by gastrointestinal, mucocutaneous, and/or cardiovascular injury occurring weeks after SARS-CoV-2 exposure. To investigate innate immune functions in MIS-C, we stimulated ex vivo peripheral blood cells from MIS-C patients with agonists of Toll-like receptors (TLR), key innate immune response initiators. We found severely dampened cytokine responses and elevated gene expression of negative regulators of TLR signaling. Increased plasma levels of zonulin, a gut leakage marker, were also detected. These effects were also observed in children enrolled months after MIS-C recovery. Moreover, cells from MIS-C children carrying rare genetic variants of lysosomal trafficking regulator ( LYST ) were less refractory to TLR stimulation and exhibited lysosomal and mitochondrial abnormalities with altered energy metabolism. Our results strongly suggest that MIS-C hyperinflammation and/or excessive or prolonged stimulation with gut-originated TLR ligands drive immune cells to a lasting refractory state. TLR hyporesponsiveness is likely beneficial, as suggested by excess lymphopenia among rare LYST variant carriers. Our findings point to cellular mechanisms underlying TLR hyporesponsiveness; identify genetic determinants that may explain the MIS-C clinical spectrum; suggest potential associations between innate refractory states and long COVID; and highlight the need to monitor long-term consequences of MIS-C.