The myeloperoxidase (MPO)-hydrogen peroxide-halide system is an efficient oxygen-dependent antimicrobial component of PMN-mediated host-defense. However, MPO deficiency results in few clinical consequences indicating the activation of compensatory mechanisms. Here, we determined possible mechanisms protecting the host using MPO ^-/- mice challenged with live gram negative bacterium E. coli. We observed that MPO ^-/- mice unexpectedly had improved survival compared to WT mice within 5 - 12 h after i.p. E. coli challenge. Lungs of MPO ^-/- mice also demonstrated lower bacterial colonization and markedly attenuated increases in microvascular permeability and edema formation after E. coli challenge compared with WT. However, PMN sequestration in lungs of both groups was similar. Basal iNOS expression was significantly elevated in lungs and PMNs of MPO ^-/- mice and NO production was increased 2- to 6-fold compared with WT. Nitrotyrosine levels doubled in lungs of WT mice within 1 h after E. coli challenge but did not change in MPO^-/- mice. Inhibition of iNOS in MPO ^-/- mice significantly increased lung edema and reduced their survival after E. coli challenge but iNOS inhibitor had the opposite effect in WT mice. Thus, augmented iNOS expression and NO production in MPO ^-/- mice compensate for the lack of HOCl-mediated bacterial killing, and the absence of MPO-derived oxidants mitigates E. coli sepsis-induced lung inflammation and injury.