Streptococcus pneumoniae (the pneumococcus) colonizes the human nasopharynx and is a significant pathogen worldwide. Pneumolysin (Ply) is a multi-functional, extracellular virulence factor produced by this organism that is critical for pathogenesis. Despite the absence of any apparent secretion or cell surface attachment motifs, Ply localizes to the cell envelope of actively growing cells. We sought to characterize the consequences of this surface localization. Through functional assays with whole cells and subcellular fractions, we determined that Ply activity and its release into the extracellular environment are inhibited by peptidoglycan (PG) structure. The ability of PG to inhibit Ply release was dependent on the stem peptide composition of this macromolecule, which was manipulated by mutation of the murMN operon that encodes proteins responsible for branched stem peptide synthesis. Additionally, removal of choline-binding proteins from the cell surface significantly reduced Ply release to levels observed in a mutant with a high proportion of branched stem peptides suggesting a link between this structural feature and surface-associated choline-binding proteins involved in PG metabolism. Of clinical relevance, we also demonstrate that a hyperactive, mosaic murMN allele associated with penicillin resistance causes decreased Ply release with concomitant increases in the amount of branched stem peptides. Finally, using a murMN deletion mutant, we observed that increased Ply release is detrimental to virulence during a murine model of pneumonia. Taken together, our results reveal a novel role for branched stem peptides in pneumococcal pathogenesis and demonstrate the importance of controlled Ply release during infection. These results highlight the importance of PG composition in pathogenesis and may have broad implications for the diverse PG structures observed in other bacterial pathogens.