Lysozyme is a cornerstone of innate immunity. The canonical mechanism for bacterial killing by lysozyme occurs through the hydrolysis of cell wall peptidoglycan (PG). Conventional type (c-type) lysozymes are also highly cationic and can kill certain bacteria independently of PG hydrolytic activity. Reflecting the ongoing arms race between host and invading microorganisms, both gram-positive and gram-negative bacteria have evolved mechanisms to thwart killing by lysozyme. In addition to its direct antimicrobial role, more recent evidence has shown that lysozyme modulates the host immune response to infection. The degradation and lysis of bacteria by lysozyme enhance the release of bacterial products, including PG, that activate pattern recognition receptors in host cells. Yet paradoxically, lysozyme is important for the resolution of inflammation at mucosal sites. This review will highlight recent advances in our understanding of the diverse mechanisms that bacteria use to protect themselves against lysozyme, the intriguing immunomodulatory function of lysozyme, and the relationship between these features in the context of infection.