Lactoferrin (Lf) is an iron-binding protein of external secretions and neutrophil secondary granules with antimicrobial and immunomodulatory activities. To further define these properties of Lf, we have investigated the response to Staphylococcus aureus infection in transgenic mice carrying a functional human Lf gene. The transgenic mice cleared bacteria significantly better than congenic littermates, associated with a trend to reduced incidence of arthritis, septicemia, and mortality. We identified two pathways by which S. aureus clearance was enhanced. First, human Lf directly inhibited the growth of S. aureus LS-1 in vitro. Second, S. aureus-infected transgenic mice exhibited enhanced Th1 immune polarization. Thus, spleen cells from infected transgenic mice produced higher levels of TNF-α and IFN-γ and less IL-5 and IL-10 upon stimulation ex vivo with the exotoxin toxic shock syndrome toxin-1 compared with congenic controls. To confirm that these effects of Lf transgene expression could occur in the absence of live bacterial infection, we also showed that Lf-transgenic DBA/1 mice exhibited enhanced severity of collagen-induced arthritis, an established model of Th1-induced articular inflammation. Higher levels of stainable iron in the spleens of transgenic mice correlated with human Lf distribution, but all other parameters of iron metabolism did not differ between transgenic mice and wild-type littermates. These results demonstrate that human Lf can mediate both antimicrobial and immunomodulatory activities with downstream effects on the outcome of immune pathology in infectious and inflammatory disease.