Mycothiol is the major thiol produced by mycobacteria and is required for growth of Mycobacterium tuberculosis. The final three steps in the biosynthesis of mycothiol have been fully elucidated but the initial steps have been unclear. A glycosyltransferase, MshA, is required for production of the mycothiol precursor, 1-O-(2-acetamido-2-deoxy-alpha-D-glucopyranosyl)-D-myo-inositol, but its substrates and immediate products were unknown. In this study, we show that the N-acetylglucosamine donor is UDP-N-acetylglucosamine and that the N-acetylglucosamine acceptor is 1L-myo-inositol 1-phosphate. The reaction generates UDP and 1-O-(2-acetamido-2-deoxy-alpha-D-glucopyranosyl)-D-myo-inositol 3-phosphate. Using cell-free extracts of M. smegmatis mc(2)155, little activity was obtained with myo-inositol, 1D-myo-inositol 1-phosphate, or myo-inositol 2-phosphate as the N-acetylglucosamine acceptor. A phosphatase, designated MshA2, is required to dephosphorylate 1-O-(2-acetamido-2-deoxy-alpha-glucopyranosyl)-D-myo-inositol 3-phosphate to produce 1-O-(2-acetamido-2-deoxy-alpha-D-glucopyranosyl)-D-myo-inositol. The latter is deacetylated, ligated with cysteine, and the cysteinyl amino group acetylated by acetyl-CoA to complete the mycothiol biosynthesis pathway. Uptake and concentration of myo-[14C]inositol is rapid in Mycobacterium smegmatis and leads to production of radiolabeled inositol 1-phosphate and mycothiol. This demonstrates the presence of a myo-inositol transporter and a kinase that generates 1L-myo-inositol 1-phosphate. The biochemical pathway of mycothiol biosynthesis is now fully elucidated.