The microbial environment impacts many aspects of metazoan physiology through largely undefined molecular mechanisms. The commensal strain Lactobacillus plantarumWJL (LpWJL) sustains Drosophila hormonal signals that coordinate systemic growth and maturation of the fly. Here we examine the underlying mechanisms driving these processes and show that LpWJL promotes intestinal peptidase expression, leading to increased intestinal proteolytic activity, enhanced dietary protein digestion, and increased host amino acid levels. LpWJL-mediated peptidase upregulation is partly driven by the peptidoglycan recognition and signaling cascade PGRP-LE/Imd/Relish. Additionally, this mutualist-mediated physiological benefit is antagonized upon pathogen infection. Pathogen virulence selectively impedes LpWJL-mediated intestinal peptidase activity enhancement and juvenile growth promotion but does not alter growth of germ-free animals. Our study reveals the adaptability of host physiology to the microbial environment, whereby upon acute infection the host switches to pathogen-mediated host immune defense at the expense of mutualist-mediated growth promotion.