Photorhabdus is a virulent pathogen that kills its insect host by overcoming immune responses. The bacterium also secretes a range of antibiotics to suppress the growth of other invading microorganisms. Here we show that Photorhabdus produces a small-molecule antibiotic (E)-1,3-dihydroxy-2-(isopropyl)-5-(2-phenylethenyl)benzene (ST) that also acts as an inhibitor of phenoloxidase (PO) in the insect host Manduca sexta. The Photorhabdus gene stlA encodes an enzyme that produces cinnamic acid, a key precursor for production of ST, and a mutation in stlA results in loss of ST production and PO inhibitory activity, which are both restored by genetic complementation of the mutant and also by supplying cinnamic acid. ST is produced both in vitro and in vivo in sufficient quantities to account for PO inhibition and is the only detectable solvent-extractable inhibitor. A Photorhabdus stlA − mutant is significantly less virulent, proliferates slower within the host, and provokes the formation of significantly more melanotic nodules than wild-type bacteria. Virulence of the stlA − mutant is also rescued by supplying cinnamic acid. The proximate cause of the virulence effect, however, is the inhibition of PO, because the effect of the stlA − mutation on virulence is abolished in insects in which PO has been knocked down by RNA interference (RNAi). Thus, ST has a dual function both as a PO inhibitor to counter host immune reactions and also as an antibiotic to exclude microbial competitors from the insect cadaver.