Synthetic gene circuits are often engineered by considering the host cell as an invariable 'chassis'. Circuit activation, however, may modulate host physiology, which in turn can substantially impact circuit behavior. We illustrate this point by a simple circuit consisting of mutant T7 RNA polymerase (T7 RNAP*) that activates its own expression in the bacterium Escherichia coli. Although activation by the T7 RNAP* is noncooperative, the circuit caused bistable gene expression. This counterintuitive observation can be explained by growth retardation caused by circuit activation, which resulted in nonlinear dilution of T7 RNAP* in individual bacteria. Predictions made by models accounting for such effects were verified by further experimental measurements. Our results reveal a new mechanism of generating bistability and underscore the need to account for host physiology modulation when engineering gene circuits.