Enterococcus faecium is a microbiota species in humans that can modulate host immunity1, but has also acquired antibiotic resistance and is a major cause of hospital-associated infections2. Notably, diverse strains of E. faecium produce SagA, a highly conserved peptidoglycan hydrolase that is sufficient to promote intestinal immunity3-5 and immune checkpoint inhibitor antitumor activity6. However, the functions of SagA in E. faecium were unknown. Here we report that deletion of sagA impaired E. faecium growth and resulted in bulged and clustered enterococci due to defective peptidoglycan cleavage and cell separation. Moreover, ΔsagA showed increased antibiotic sensitivity, yielded lower levels of active muropeptides, displayed reduced activation of the peptidoglycan pattern-recognition receptor NOD2, and failed to promote cancer immunotherapy. Importantly, plasmid-based expression of SagA, but not its catalytically-inactive mutant, restored ΔsagA growth, production of active muropeptides and NOD2 activation. SagA is therefore essential for E. faecium growth, stress resistance and activation of host immunity.