Cooperative communication is used as an effective measure against fading in wireless communication systems. In a classical one-way cooperative system, the relay needs as many orthogonal channels as the number of terminal it assists, yielding a poor spectral efficiency. Efficiency is improved in two-way relaying systems, where a relay simultaneously assists two terminals using only one timeslot. In the current contribution, a two-way quantize-and-forward (QF) protocol is presented. Because of the coarse quantization, the proposed protocol has a low complexity at the relay and can be used with half-duplex devices, making it very suitable for low-complexity applications like sensor networks. Additionally, channel parameter estimation is discussed. By estimating all channel parameters at the destination terminals, relay complexity is kept low. Using Monte Carlo simulations, it is shown that the proposed QF protocol achieves a good frame error rate (FER) performance as compared to two-way amplify-and-forward (AF) and one-way relaying systems. It is further shown that, using the proposed estimation algorithm, the FER degradation arising from the channel parameter estimation is negligible when compared to an (unrealistic) system in which all parameters are assumed to be known.