Beta-ketoacyl-acyl carrier protein synthase III (FabH), the most divergent member of the family of condensing enzymes, is a key catalyst in bacterial fatty acid biosynthesis and a promising target for novel antibiotics. We report here the crystal structures of FabH determined in the presence and absence of acetyl-CoA. These structures display a fold that is common for condensing enzymes. The observed acetylation of Cys(112) proves its catalytic role and clearly defines the primer binding pocket. Modeling based on a bound CoA molecule suggests catalytic roles for His(244) and Asn(274). The structures provide the molecular basis for FabH substrate specificity and reaction mechanism and are important for structure-based design of novel antibiotics.