Cellulose is the most abundant renewable carbon resource on earth and is an indispensable raw material for the wood, paper, and textile industries. A model system to study the mechanism of cellulose biogenesis is the bacterium Acetobacter xylinum which produces pure cellulose as an extracellular product. It was from this organism that in vitro preparations which possessed high levels of cellulose synthase activity were first obtained in both membranous and soluble forms. We recently demonstrated that this activity is subject to a complex multi-component regulatory system, in which the synthase is directly affected by an unusual cyclic nucleotide activator enzymatically formed from GTP, and indirectly by a Ca (2+) -sensitive phosphodiesterase which degrades the activator. The cellulose synthase activator (CSA) has now been identified as bis-(3' 5')-cyclic diguanylic acid (5'G3'p5'G3'p) on the basis of mass spectroscopic data, nuclear magnetic resonance analysis and comparison with chemically synthesized material. We also report here on intermediary steps in the synthesis and degradation of this novel circular dinucleotide, which have been integrated into a model for the regulation of cellulose synthesis.