Prolactin (PRL), originally associated with milk secretion, is now known to possess a wide variety of biological actions and diverse sites of production beyond the pituitary. Proteolytic cleavage is a common post-translational modification that can either activate precursor proteins or confer upon the peptide fragment unique biological actions not exerted by the parent molecule. Recent studies have demonstrated that the 16-kDa N-terminal proteolytic cleavage product of PRL (16K-PRL) acts as a potent inhibitor of angiogenesis. Despite previous demonstrations of 16K-PRL production in vivo, biological functions beyond its antiangiogenic actions remain unknown. Here we show that 16K-PRL, but not full-length PRL, acts to promote the expression of the inducible isoform of nitric oxide synthase (iNOS) and nitric oxide (*NO) production by pulmonary fibroblasts and alveolar type II cells with potency comparable with the proinflammatory cytokines interleukin-1beta, interferon gamma, and tumor necrosis factor alpha. The differential effect of 16K-PRL versus PRL occurs through a receptor distinct from known PRL receptors. Additionally, pulmonary fibroblasts express the PRL gene and endogenously produce 16K-PRL, suggesting that this pathway may serve both autocrine and paracrine roles in the regulation of *NO production. These results reveal that proteolytic cleavage of PRL confers upon this classical hormone potent iNOS inducing activity, suggesting its role in inflammatory/immune processes.