Temperate phages constitute a potentially beneficial genetic reservoir for bacterial innovation despite being selfish entities encoding an infection cycle inherently at odds with bacterial fitness. These phages integrate their genomes into the bacterial host during infection, donating new, but deleterious, genetic material: the phage genome encodes toxic genes, such as lysins, that kill the bacterium during the phage infection cycle. Remarkably, some bacteria have exploited the destructive properties of phage genes for their own benefit by co-opting them as toxins for functions related to bacterial warfare, virulence, and secretion. However, do toxic phage genes ever become raw material for functional innovation? Here we report on a toxic phage gene whose product has lost its toxicity and has become a domain of a core cellular factor, SpmX, throughout the bacterial order Caulobacterales. Using a combination of phylogenetics, bioinformatics, structural biology, cell biology, and biochemistry, we have investigated the origin and function of SpmX and determined that its occurrence is the result of the detoxification of a phage peptidoglycan hydrolase gene. We show that the retained, attenuated activity of the phage-derived domain plays an important role in proper cell morphology and developmental regulation in representatives of this large bacterial clade. To our knowledge, this is the first observation of phage gene domestication in which a toxic phage gene has been co-opted for a housekeeping function.