The Gram-negative bacterium Escherichia coli has previously been shown to utilize two unique glucosamine (GlcN)-derived phospholipids in the biosynthesis of lipid A disaccharides (Bulawa, C.E., and Raetz, C. R.H. (1984) J. Biol. Chem. 259, 4846-4851; Ray, B. L., Painter, G.L., and Raetz, C.R.H. (1984) J. Biol. Chem. 259, 4852-4859. We now present evidence that these compounds, UDP-2,3-diacyl-GlcN and 2,3-diacyl-GlcN-1-phosphate (2,3-diacyl-GlcN-1-P), are generated in extracts of E. coli by fatty acylation of UDP-GlcNAc. The initial reaction is an O-acylation of the glucosamine ring, presumably of the 3-OH group, with (R)-beta-hydroxymyristate, followed by removal of the acetyl moiety, and further fatty acylation of the N atom with (R)-beta-hydroxymyristate to yield UDP-2,3-diacyl-GlcN. Hydrolysis of the pyrophosphate bridge in this molecule gives 2,3-diacyl-GlcN-1-P + UMP. In vivo pulse labeling with 32Pi supports this postulated pathway, since UDP-2,3-diacyl-GlcN is labeled prior to 2,3-diacyl-GlcN-1-P. UDP-glucosamine is inactive as a substrate in the initial acylation reaction. These acylations show an absolute specificity for fatty acyl moieties activated with acyl carrier protein. No reaction is detected with fatty acyl-CoA or free fatty acid. The fatty acylation of sugar nucleotides has not been reported previously in E. coli or any other organism.