The lipB gene of Escherichia coli encodes an enzyme (LipB) that transfers the octanoyl moiety of octanoyl-acyl carrier protein (octanoyl-ACP) to the lipoyl domains of the 2-oxo acid dehydrogenases and the H subunit of glycine cleavage enzyme. We report that the LipB reaction proceeds through an acyl-enzyme intermediate in which the octanoyl moiety forms a thioester bond with the thiol of residue C169. The intermediate was catalytically competent in that the octanoyl group of the purified octanoylated LipB was transferred either to an 87-residue lipoyl domain derived from E. coli pyruvate dehydrogenase or to ACP (in the reversal of the physiological reaction). The octanoylated LipB linkage was cleaved by thiol reagents and by neutral hydroxylamine, strongly suggesting a thioester bond. Separation and mass spectral analyses of the peptides of the unmodified and octanoylated proteins showed that each of the assigned peptides of the two proteins had identical masses, indicating that none of these peptides were octanoylated. However, the one major peptide that we failed to recover was that predicted to contain all three LipB cysteine residues. These three cysteine residues were therefore targeted for site-directed mutagenesis and only C169 was found to be essential for LipB function in vivo. The C169S protein had no detectable activity whereas the C169A protein retained trace activity. Surprisingly, both proteins lacking C169 formed an octanoyl-LipB species, although neither was catalytically competent. The octanoyl-LipB species formed by the C169S protein was resistant to neutral hydroxylamine treatment, consistent with formation of an ester linkage to the serine hydroxyl group. The octanoyl-C169A LipB species was probably acylated at C147. LipB species that lacked all three cysteine residues also formed a catalytically incompetent octanoyl adduct, indicating the presence of a reactive side chain other than a cysteine thiol that lies adjacent to the active site.