There is a complex interplay between the regulation of flagellar motility and the expression of virulence factors in many bacterial pathogens. We investigated the role of FliZ in the regulation of flagellar and virulence genes in Xenorhabdus nematophila, an insect pathogen. The fliZ gene is the second gene in the fliAZ operon in X. nematophila. In vivo transcription analysis revealed a positive feedback loop of fliAZ transcription in which FliZ activates flhDC, the master operon of flagellar regulon in X. nematophila, leading to an increased transcription of the FlhDC-dependent promoter of fliAZ. We also showed that fliAZ and flhDC mutants lacked motility, had no haemolysin or Tween lipase activity and displayed an attenuated virulence phenotype in insects. Lipase activity is controlled by FliA, whereas haemolysin production and full virulence phenotype have been reported to be FliZ-dependent. Transcriptional analysis revealed that FliZ directly controlled expression of the xhlBA and xaxAB operons, which encode haemolysins from the two-partner secretion system and the binary XaxAB toxin family respectively. We suggest that this regulatory pathway may also occur in other pathogenic enterobacteria with genes encoding members of these two growing families of haemolysins.