In bacteria, cytokinesis is dependent on lytic enzymes that facilitate remodelling of the cell wall during constriction. In this work, we identify a thus far uncharacterized periplasmic protein, DipM, that is required for cell division and polarity in Caulobacter crescentus. DipM is composed of four peptidoglycan binding (LysM) domains and a C-terminal lysostaphin-like (LytM) peptidase domain. It binds to isolated murein sacculi in vitro, and is recruited to the site of constriction through interaction with the cell division protein FtsN. Mutational analyses showed that the LysM domains are necessary and sufficient for localization of DipM, while its peptidase domain is essential for function. Consistent with a role in cell wall hydrolysis, DipM was found to interact with purified murein sacculi in vitro and to induce cell lysis upon overproduction. Its inactivation causes severe defects in outer membrane invagination, resulting in a significant delay between cytoplasmic compartmentalization and final separation of the daughter cells. Overall, these findings indicate that DipM is a periplasmic component of the C. crescentus divisome that facilitates remodelling of the peptidoglycan layer and, thus, coordinated constriction of the cell envelope during the division process.