Mycothiol is a novel thiol produced only by actinomycetes and is the major low-molecular-weight thiol in mycobacteria. Mycothiol was previously shown to be synthesized from 1-D-myo-inosityl-2-amino-2-deoxy-alpha-D-glucopyranoside by ligation with cysteine followed by acetylation. A novel mycothiol-dependent detoxification enzyme, mycothiol conjugate amidase, was recently identified in Mycobacterium smegmatis and shown to have a homolog, Rv1082, in Mycobacterium tuberculosis. In the present study we found that a protein encoded by the M. tuberculosis open reading frame Rv1170, a homolog of Rv1082, possesses weak mycothiol conjugate amidase activity but shows substantial deacetylation activity with 1-D-myo-inosityl-2-acetamido-2-deoxy-alpha-D-glucopyranoside (GlcNAc-Ins), a hypothetical mycothiol biosynthetic precursor. The availability of this protein enabled us to develop an assay for GlcNAc-Ins, which was used to demonstrate that GlcNAc-Ins is present in M. smegmatis at a level about twice that of mycothiol. It was shown that GlcNAc-Ins is absent in mycothiol-deficient mutant strain 49 of M. smegmatis and that this strain can concentrate GlcNAc-Ins from the medium and convert it to mycothiol. This demonstrates that GlcNAc-Ins is a key intermediate in the pathway of mycothiol biosynthesis. Assignment of Rv1170 as the gene coding the deacetylase in the M. tuberculosis genome represents the first identification of a gene of the mycothiol biosynthesis pathway. The presence of a large cellular pool of substrate for this enzyme suggests that it may be important in regulating mycothiol biosynthesis.