rpoS is the structural gene for sigma s, which is a second vegetative sigma subunit of RNA polymerase in Escherichia coli and is involved in the expression of many stationary phase-induced genes. Upstream of rpoS is an open reading frame (ORF) whose function and regulation have not been studied. Strong overproduction of its gene product using the IPTG-inducible tac promoter leads to the formation of bulges at the cell septum and the cell poles, and in rapidly growing cells brings about cell lysis, indicating that the gene product has a hydrolytic function in cell wall formation or maintenance. This is corroborated by sequence homology to lysostaphin, a cell wall lytic exoenzyme synthesized by two Staphylococcus strains. Using globomycin, a specific inhibitor of signal peptidase II, we demonstrate that the product of the ORF is a novel lipoprotein (NlpD). Two transcriptional start sites for nlpD have been localized. In contrast to rpoS, nlpD is not induced during entry into stationary phase. Growth-phase-regulated transcription of rpoS is initiated at additional sites within the nlpD ORF, but the nlpD promoters contribute substantially to the basal level of rpoS expression in exponentially growing cells, indicating that nlpD and rpoS form an operon.