Two proteins that bind penicillin were observed in Escherichia coli infected with lambda phages 141, 142, 650, and 651 from the Kohara genomic library. These phages carry chromosomal DNA fragments that do not contain any known penicillin binding protein (PBP) genes, indicating that unrecognized gene products were exhibiting penicillin binding activity. The genes encoding these proteins were subcloned, sequenced, and identified. One gene was ampC, which encodes a chromosomal class C beta-lactamase. The second gene was located at about 8.5 min on the E. coli genomic map and is a previously uncharacterized open reading frame, here named ampH, that encodes a protein closely related to the class C beta-lactamases. The predicted AmpH protein is similar in length to AmpC, but there are extensive alterations in the amino acid sequence between the SXXK and YXN motifs of the two proteins. AmpH bound strongly to penicillin G, cefoxitin, and cephalosporin C; was temperature sensitive; and disappeared from cells after overnight incubation in stationary phase. Although closely related to AmpC and other class C beta-lactamases, AmpH showed no beta-lactamase activity toward the substrate nitrocefin. Mutation of the ampC and/or ampH genes in E. coli lacking PBPs 1a and 5 produced morphologically aberrant cells, particularly in cell filaments induced by aztreonam. Thus, these two members of the beta-lactamase family exhibit characteristics similar to those of the classical PBPs, and their absence affects cell morphology. These traits suggest that AmpC and AmpH may play roles in the normal course of peptidoglycan synthesis, remodeling, or recycling.