The biochemical basis for the inhibition of fatty acid biosynthesis in Escherichia coli by the antibiotic thiolactomycin was investigated. A biochemical assay was developed to measure acetoacetyl-acyl carrier protein (ACP) synthase activity, a recently discovered third condensing enzyme from E. coli (Jackowski, S., and Rock, C.O. (1987) J. Biol. Chem. 262, 7927-7931). In contrast to the other two condensing enzymes in E. coli, acetoacetyl-ACP synthase (synthase III) condensed malonyl-ACP with acetyl-CoA, rather than with acetyl-ACP. The concentration dependence of thiolactomycin inhibition of fatty acid biosynthesis in vivo was the same as the inhibition of acetoacetyl-ACP synthase activity in vitro indicating that the two phenomena were related. A thiolactomycin-resistant mutant (strain CDM5) was isolated. The specific activity of acetoacetyl-ACP synthase in extracts from this mutant was 10-fold lower than in extracts from its thiolactomycin-sensitive parent resulting in a marked defect in the ability of strain CDM5 to incorporate acetyl-CoA into fatty acids in vitro. The residual acetoacetyl-ACP synthase activity in the resistant strain was refractory to thiolactomycin inhibition. In addition, acetyl-CoA:ACP transacylase activity in strain CDM5 was resistant to inactivation by thiolactomycin suggesting that the acetoacetyl-ACP synthase also catalyzes this transacylation reaction. These data point to acetoacetyl-ACP synthase as a target for thiolactomycin inhibition of bacterial fatty acid biosynthesis.