Gram-positive bacteria are recognized pathogens in urinary tract infections. Lipoteichoic acids, major components of the cell wall of gram-positive bacteria, are important virulence attributes, but their mechanism of action is not well understood. We have postulated that infection-induced altered function of progenitors of urothelial cells (UT) residing in the basal layer is likely to have long-lasting effects on the architecture and function of the urothelium. Our earlier in vitro studies in UT of basal type, grown under growth restricting conditions, have shown that 1) treatment with lipoteichoic acid from Streptococcus faecalis (LT-2) stimulates a subpopulation of progenitors of urothelial cells to proliferate, and 2) resulting large colonies differentiated at an increased rate under conditions simulating those in the basal layer of the urothelium. The hypothesis underlying the present studies was that nitric oxide (NO) mediated LT-2 action on these functions of UT. Immunocytochemical studies using an antibody against inducible nitric oxide synthase (iNOS) confirmed expression of iNOS in LT-2-treated UT. Our hypothesis was tested by treating UT grown under growth restricting conditions (0.005% bovine pituitary extract) with LT-2 (25 μg/ml), in the presence or absence of inhibitors of NOS (1 mM N(G)-nitro-L-arginine methyl ester [L-NAME]; 1 μM dexamethasone [DEXA]) or 25 μM hemoglobin, a potent inactivator of NO. Treatment with LT-2 in the presence of these agents prevented the following effects of LT-2 alone: 1) the stimulatory effect on proliferation of single cells, as well as within the resulting large colonies; 2) the subsequent differentiation of large colonies resulting from this proliferative activity, as indicated by distribution of β1 subunit-containing integrins to cell-cell contacts; 3) the inhibitory effect on the subsequent ability of LT-2-treated UT to attach to extracellular matrix proteins. These studies suggest that induction of NOS by LT-2, initially aimed at restricting the replication of infectious agents, may have potential cost of damage to the host bladder by interfering with urothelial differentiation.