Tracheal cytotoxin (TCT), a fragment of the bacterial surface molecule peptidoglycan (PGN), is the factor responsible for the extensive tissue damage characteristic of whooping cough and gonorrhea infections. Here, we report that Vibrio fischeri also releases TCT, which acts in synergy with lipopolysaccharide (LPS) to trigger tissue development in its mutualistic symbiosis with the squid Euprymna scolopes. As components of PGN and LPS have commonly been linked with pathogenesis in animals, these findings demonstrate that host interpretation of these bacterial signal molecules is context dependent. Therefore, such differences in interpretation can lead to either inflammation and disease or to the establishment of a mutually beneficial animal-microbe association.