Streptococcus pneumoniae is a major cause of life-threatening diseases worldwide. Here we provide an in-depth functional characterization of LytB, the peptidoglycan hydrolase responsible for physical separation of daughter cells. Identified herein as an N-acetylglucosaminidase, LytB is involved also in colonization and invasion of the nasopharynx, biofilm formation and evasion of host immunity as previously demonstrated. We have shown that LytB cleaves the GlcNAc-β-(1,4)-MurNAc glycosidic bond of peptidoglycan building units. The hydrolysis occurs at sites with fully acetylated GlcNAc moieties, with preference for uncross-linked muropeptides. The necessity of GlcN acetylation and the presence of a single acidic moiety (Glu585) essential for catalysis strongly suggest a substrate-assisted mechanism with anchimeric assistance of the acetamido group of GlcNAc moieties. Additionally, modelling of the catalytic region bound to a hexasaccharide tripentapeptide provided insights into substrate-binding subsites and peptidoglycan recognition. Besides, cell-wall digestion products and solubilisation rates might indicate a tight control of LytB activity to prevent unrestrained breakdown of the cell wall. Choline-independent localization at the poles of the cell, mediated by the choline-binding domain, peptidoglycan modification, and choline-mediated (lipo)teichoic-acid attachment contribute to the high selectivity of LytB. Moreover, so far unknown chitin hydrolase and glycosyltransferase activities were detected using GlcNAc oligomers as substrate.